Citigroup's Search For A New CEO: Vikram Pandit???!!!!!!

This morning's Wall Street Journal features an article on the front page of the Money & Investing section focusing on Vikram Pandit as the lead internal CEO candidate for Citigroup.

To say the piece is laughable is being charitable. Some of the quotes and information about Pandit makes you wonder if, in any other organization, the guy would even still have a job. At Citi, appropriately dysfunctionally, instead, he's a leading candidate for the CEO job.

The board at Citigroup must be so proud!

Consider the information reported in the article,

"Vikram Pandit's stature has been rising ever since he joined Citigroup Inc. in July. But Old Lane Partners, the hedge fund that he co-founded and that was sold to the financial-services firm earlier this year, hasn't enjoyed the same kind of success.

Now, with Mr. Pandit among the finalists to succeed Charles Prince as Citigroup's chief executive, Old Lane is getting fresh attention from investors. While the past few months have been tough on many hedge funds, Old Lane's performance has fallen short of the high expectations that Citigroup had when it shelled out more than $800 million to buy the fund.

Citigroup's goal was to use Old Lane and its well-regarded management team to jump-start the New York bank's small alternative-investments business. Mr. Pandit and Old Lane's other founders, meanwhile, said that being part of a giant bank would help them attract fresh capital.

It hasn't worked out that way.

Old Lane lost money in November, falling about 1%, according to people familiar with the matter. That stacks up well against other funds, which lost an average of about 2.4% last month, according to Hedge Fund Research Inc. But it weighed down Old Lane's returns for the year, which now are about 3%, lagging behind the average hedge fund's roughly 10% gain."

So, to summarize, Citigroup paid Pandit a small- well, pretty hefty, actually- fortune for his nascent, less-than-a-year-old hedge fund. Since then, it's underperformed its peer group.

As a related, confirming data point, I ran into an old money management acquaintance, D, this fall in a local restaurant. I had, as it happened, seen him at my squash club at midday several times in the prior two weeks. So I had already figured he was no longer with Citi's alternative investments group.

I was correct. When I innocently inquired how things at Citigroup were, he confirmed that his boss had been tossed out a few months earlier by Pandit's crew. Now, D was gone, too. It turns out that his particular hedge fund overlapped with Pandit's own Old Lane product. D's fund had a good August, while Pandit's cratered badly. For the year, D's fund outpaced Pandit's Old Lane product as well.

Too bad for D. He and his fund were tossed, while Vikram concentrated on managing the whole enchilada of the alternative investments group.

This anecdote tells me two things. First, Pandit is as much a political operator as he is an effective executive, clearing out competing internal interests as he extended his authority throughout Citi's alternative investments group. Second, he has no confirmed record of success in his latest chosen career.

With that as background, let's consider more from the Journal piece,

"Mr. Pandit, who ran Morgan Stanley's powerful institutional securities before leaving after a management shakeup in 2005, is one of four remaining candidates for the CEO position that Mr. Prince vacated last month as the bank warned of billions of dollars in mortgage-related losses.

While other Citigroup executives -- including Ajay Banga, who runs the bank's international consumer group, and Chief Financial Officer Gary Crittenden -- have been interviewed for the CEO job, Mr. Pandit is the leading internal candidate, according to people familiar with the matter.

In its first year since launching in April 2006, Old Lane generated a roughly 6.5% return, which is respectable for a newly launched fund. This year, the fund was headed for a roughly 16% annual gain before a credit storm hit in August, roiling global markets and leading Old Lane to a 5.9% loss for the month, according to a person close to the fund. That was one of only four months in which Old Lane has lost money, this person said.

Some Old Lane investors say the performance wasn't as good as expected this year in part because Mr. Pandit has been distracted by his Citigroup duties and tumult at the top of the bank.

Old Lane's performance doesn't necessarily undercut Mr. Pandit's qualifications to run one of the world's biggest banks. Some bankers say that managing a hedge fund and running a $170 billion bank require different skills.

Old Lane's lackluster showing shouldn't be a strike against Mr. Pandit, says Joe McCabe, vice chairman of executive-search firm CTPartners in Boston.

Old Lane was "a warm-up act compared to being the CEO of Citigroup," he says. "I wouldn't hold it against him."

Old Lane's track record also raises questions about the amount that Citigroup paid for the fund in April, when it had been operating for barely a year. The acquisition was the brainchild of Robert Rubin, Citigroup's current chairman and a former Treasury secretary who is now the main advocate of Mr. Pandit becoming CEO.

The $800 million-plus price tag represented at least 18% of Old Lane's roughly $4.5 billion in assets under management at the time. That was a generous premium. Publicly traded alternative-investment firms such as Blackstone Group, Fortress Investment Group and Och-Ziff Capital Management command market values that are 3%-6% of assets.

But since joining Citigroup, Old Lane hasn't bulked up its assets under management. As of early September, the fund was overseeing nearly $4.25 billion, compared to about $4.5 billion in April. Old Lane today manages more than $4 billion, say people familiar with the matter."

Now, let's think about Pandit's track record at this point. According to the Journal article, he "ran Morgan Stanley's powerful institutional securities before leaving after a management shakeup in 2005."

So he hadn't apparently actually been in asset management, or an asset manager, at Morgan Stanley. Yet he forms Old Lane, attracts investors, then gets bought out by Citigroup within a year. But the hedge fund actually loses assets while under Pandit's management at Citi, as its performance trails its peer group.

You can imagine how a hypothetical interview of Pandit by Citi's board might go.....

Board Members: Vikram, when Bob Rubin offered to buy your Old Lane hedge fund firm for about 3x the going rate, and make you head of our alternative investments division, what was your reaction?

Pandit: Well, I thought about his offer for, oh, maybe 5 or six 6 seconds, and then accepted.

Board: OK. Now, you launched Old Lane after bailing out at Morgan Stanley, during that unpleasantness between Purcell, the old bulls, Zoe Cruz, etc. You didn't have any particular equity management experience?

Pandit: No, not really.

Board: You attracted slightly more than $4B, and proceeded to underperform your peer group, even after arriving here?

Pandit, Yes, that's about right.

Board: So you left one job. Started a new career and are underperforming in that?

Pandit: Yes, again, that would be about the size of it.

Board: Well, we see no reason why you shouldn't be the lead internal candidate for CEO of our nearly-impossible-to-manage-or-understand money center bank.

Pandti: Great. That's terrific news. I'll look forward to your decision.

How many of us believe prior failure in one's chosen line of work makes you ideally qualified for a new, unrelated, much more difficult job?

How many people, having done what Pandit has for the past 18 months, would even still have their job?

Reading this piece in the Journal this morning, especially the hilarious quote from the executive search firm VP, McCabe, only confirms my sense that Citigroup remains totally dysfunctional. Rubin not only fiddled while Citigroup faltered, he then compounded his bad judgment by overpaying an unqualified executive to become head of all Citi's alternative investments. Now, he wants to promote him another level up beyond his demonstrated competency, to CEO of the entire firm.

As I wrote here and here recently, it should really just be broken up into its understandable components, each being either spun off independently, or sold to a logical buyer.

Maybe, though, Rubin has to be forced off the board first, before any sensible next steps can occur at the seriously damaged bank.

Nice job, Bob.