Pandit's Interview: Footage From The Cutting Room Floor

This morning's Wall Street Journal's Money & Investing section featured coverage of Citigroup's elevation of Vikram Pandit to be its latest sacrificial lamb, a/k/a new CEO.

Last night, CNBC aired clips from an interview with Pandit. As I teasingly wrote here recently, to say that Pandit seems an unlikely candidate for the job is, itself, a gross understatement.

As luck would have it, I found this alleged transcript of elided portions of that interview in my email inbox this morning. Though totally uncredited and unconfirmed, if true, it makes for thought-provoking reading, never the less.....

Erin Burnett: So, Mr. Pandit, were you surprised that the Citi board chose you as the new CEO?

Pandit: You bet! Who could believe that I could go from struggling hedge fund manager/owner to CEO of one of the nation's three largest banks in only six months?

EB: With so many problems at Citi, why did you agree to take the job? You wouldn't seem to have the necessary background for it.

Pandit: Well, first, of course, there's the money. And Citi's culture and history of overpaying CEOs for miserable performance. I mean, being kicked out of Morgan Stanley was the best break I ever got!

EB: Interesting perspective on that 'career move.'

Pandit: Yes. Like many financial sector executives who lose out in power struggles, I naturally formed a hedge fund. Not that I had any experience mind you, but, really, does that even matter any more?

EB: Good point.

Pandit: And, thank God, even though I ran my hedge fund for less than a year, Bob Rubin was kind enough to convince the rest of Citi's board that they should not just hire me, but overpay for my underperforming, completely untested hedge fund, in order to get me into their alternative investments group.

You know, commercial banking is so different than investment banking. The senior managers tend to be much less, shall we say, 'quick?' At Morgan Stanley, we would never buy a hedge fund that hadn't demonstrated at least a 5 year track record of unblemished success. Heck, we wouldn't even allow them to charge us management fees for the first couple of years we allowed them to manage any money we allocated to them.

At Citi, they not only didn't care about my lack of a track record, they couldn't wait to buy the whole thing!

I thought I'd died and gone to heaven! Screw Zoe Cruz and Mack the Knife.....I just made a few hundred million!!!!!!!

EB: Yes, that was a pretty amazing turn of events for you.

Pandit: And by asking me to head up alternative investments, I was able to shed any direct responsibility for Old Lane as soon as I had my picture laminated onto that Citi ID badge. Whew!

Talk about a tough business! In hedge funds, you have to perform. Back at Morgan Stanley, I always had lieutenants, or the market, or competition to blame if any of the areas under me messed up. But with a hedge fund, you're only as good as your last returns. And Old Lane's have really disappointed pretty much everybody.

Did I catch a break, or what?

EB: I guess you did at that.

Pandit: "I'm just lucky to have this opportunity...." (and this is a direct quote from his interview)

EB: So, now that you are Citigroup's CEO, what are your plans? Mergers? Spinoffs? Cost-cutting? Growth?

Pandit: Well, give me some time. About 5 years. That's what Chuck Prince got, and I think I deserve at least as much time as he had to underperform.

You know, that's one of the things that attracted me to Citi in the first place. Besides (over)paying John Havens and me $600MM for our virtually untried hedge fund, they immediately gave me a bigger job! And even more money! You gotta love this place!

Back at Morgan Stanley, you tended to have to perform first. Commercial banking is much, much different.

And the board. God, I love this board! Chuck got, what, four years to not perform? To say I'm excited to have the opportunity to fool....er.....serve this board is an understatement.

But, to your question, Erin, what will I do? Well, I guess I'll try to turn the place around, although I have absolutely no experience in doing so. I'm sure there are plenty of better-qualified turnaround execs, some of them at places like Blackstone, who could really have Citi either up and running on all eight cylinders, or broken up for more consistently superior shareholder value.

When you think about it, while I obviously have a deep risk management background, I can hardly go around troubleshooting each and every Citigroup business personally. And, besides, my risk management experience tends to be with heavily traded asset classes, not the minutiae of consumer finance underwriting and portfolio lending. Frankly, I'm nowhere in that world. Plus, Citi has a wealth of 'financial plumbing' businesses, like trust, custody, and money transfer businesses that I've never even seen before.

God knows how I'll sort through this mess! Probably, like most unprepared and underqualified new CEOs, I'll call in McKinsey or Bain to do my thinking for me!

EB: I see. Well, that certainly seems like a safe thing to do.

Pandit: You betcha! This board is largely responsible for sitting on their hands while Sandy Weill glued this Godawful mess of businesses together in the first place, and, then while Prince mismanaged the result after Sandy had to take early retirement. So, telling them that I have a marquee consulting firm working the problem will no doubt go over well. If they sat still for Weill's and Prince's failings, what do I have to worry about? I've probably got a good 12 months until I have to present any sort of action plan. Then probably another 12 months to begin implementation.

Add in the SIVs crisis, and I can maybe buy another 6 months. That's already more than half of Prince's reign, and I won't have actually had to perform yet.

Like I said, I feel very fortunate to have lucked into this position. It may well be the last easy CEO billet in the financial services sector. And I got it!

Of course, I am joking about finding this 'interview' segment in my email inbox. It's clearly meant to be a humorous analysis of the Citigroup board's latest wacky decision, via a fictious portion of the CNBC interview with Pandit.

In truth, I feel sorry for the employees of Citi. I've been there. During my days at Chase, when Butcher and Labrecque "led" the bank, and I use the term very loosely, most employees felt embarrassed that we had such poor, unqualified executives at the helm.

I'm quite sure Citigroup workers feel the same.

In fact, a few weeks ago, I was discussing the Prince departure, and handicapping of Pandit as the next CEO, with a friend in the locker room of my fitness club. As it happened, a nearby member was a manager in the alternative investments group. He bemoaned the morale issues he now faced, as he tried to explain to his own staff why the inexperienced Pandit had been paid hundreds of millions to become their new boss. And why Prince exited with a nice payout, while he was being forced to cut his expenses and staff.

It's going to be a really tough few years for Citigroup. I can't say whether Pandit will succeed in pulling Citigroup out of its morass, and setting it on a road to consistently superior total return performance for its shareholders.

Judging from recent history, though, I'd say it's extremely unlikely. Consider this.

Citgroup's board put up with Weill's antics, and his fashioning an unworkable, unmanageable financial conglomerate, whose fundamental premise of cross-selling between business units never materialized. Then that same board sat still while Chuck Prince proceeded to mismanage the bank, after first resolving the outstanding regulatory violations Weill had left hanging. With a combined seven more years of inaction while Citigroup's performance stagnated, as the nearby, Yahoo-sourced price chart indicates.

Do you really think that a board, whose executive committee has been so ineptly headed by Bob Rubin, the second-highest compensated Citi executive, which sat still for this performance, has the ability to choose the best executive to lead Citigroup out of this long nightmare?

Neither do I. It's simply inconceivable and unbelievable that this crew could do the right thing, when they've done nothing for so long.

I remain only partially joking when I refer to this recent post as a more effective solution to Citigroup's woes. That post actually appeared on the Topix, and has been read dozens of times, according to my Sitemeter visitor data.

What Citigroup needs, in my opinion, is a turnaround guy. Someone who's focus is to do whatever is necessary to unlock whatever shareholder value remains, in about six to twelve months. Pandit's actual blather about aligning Citigroup's business performances with the alleged tremendous market opportunities miss the point.

Most of Citi's businesses are commodities. There are too many stuck together in one entity to ever possibly instill entrepreneurial drive and flair in the management of almost any of them. All they currently do is cross-subsidize their joint mediocrity.

At this point, probably the simplest, best approach a new, temporary CEO could take is to simply separate the various large business groups and spin them back to shareholders, a la the ATT dismantling of some years ago. In one or two cases, such as the remnants of Smith Barney, or the consumer or institutional commercial bank units, they might be profitably sold to a competitor first.

In the final analysis, my own prognosis is that I won't be seeing Citigroup among my equity strategy's selections anytime soon. And this morning, Morgan Stanley, as if to take a well-aimed slap at its departed colleague, Vikram Pandit, recommends Citigroup as the best short for 2008, declaring,

"But looking to 2008, we see 3 reasons to be short: earnings are deteriorating, they expect new management to deliver a dividend cut, not a breakup, and they expect further hybrid issuance, diluting current shareholders."

Perhaps my final comment should be directed to the hapless Citigroup board. Do all of you have sufficient director's liability coverage?