Wachovia's & Citigroup's Annual Meetings

My longtime friend and sometimes partner, B, sent me a copy of the American Banker's article yesterday on the annual meetings of Citigroup and Wachovia.

The article noted,

"The chiefs of Citigroup Inc. and Wachovia Corp. faced angry shareholders Tuesday as both companies held their annual meetings.
Though disgruntled shareholders are not a new phenomenon at annual meetings, both Citi and Wachovia held their powwows this year on the heels of reporting substantial first-quarter losses tied to the persisting credit crisis.

In New York, several shareholders called on Citigroup's entire board to resign, but all the directors were reelected, Citi said, with at least two-thirds majorities. In Charlotte several investors demanded that G. Kennedy Thompson step down as chairman, president, and chief executive."

I couldn't agree more with the shareholders calling for Citi's entire board to resign. And, given Wachovia's troubles from its Golden West acquisition, Ken Thompson should be leaving, as well.

If you need to see why there's only one weapon for shareholders, selling the stock of a company with which they are disappointed, consider the article's portrayal of Thompson's disgusting behavior,

"Mr. Thompson heard the first salvo early on as a critic approached the microphone before he could begin his presentation. Manuel Lopez, identifying himself as a shareholder, was the first of several to call on Mr. Thompson to resign. He accused management of either withholding facts or being "completely unaware" of Wachovia's financial condition, drawing strong applause from many of the 400 audience members.

Mr. Thompson took the criticism quietly before offering a mea culpa in his prepared remarks. "I'm not here to sugarcoat things, make excuses, or say that we are a victim of circumstances." Wachovia's revenue stream is sufficient to carry it through the economic crisis, he said, and he forecast long-term success. "Nothing is more important to me than restoring credibility" lost in the October 2006 purchase of the big Oakland, Calif., thrift company Golden West Financial Corp., he concluded."

As the nearby Yahoo-sourced one-year price chart for Citigroup, Wachovia and the S&P500 Index indicates, both banks lost more than 50% of their stock's value in that time period, while the index was marginally negative.

With results like these, you'd think Thompson would at least offer to return a few years' worth of deferred compensation, to show his firm's shareholders that he really 'felt their pain.'

That isn't going to happen, is it?

No. And this is why reforming CEO compensation to consist largely of lagged equity awards subject to consistently beating the S&P500's total return. Otherwise, CEOs like Thompson win big in good years, and do just 'pretty well' when their prior decisions boomerang, as his did with the Golden West acquisition.

You know that if one of his subordinates had been so boneheaded as to have done something so foolish, Thompson would have fired him.

Pandit's a little different, in that he lucked into his job so late in 2007 that he can't really be held accountable for much of anything yet.

If only his board were to resign, the new one could learn a lesson from both banks' recent difficulties, and redesign Pandit's compensation to go light on cash payments, and heavy on lagged, S&P-performance-related awards of Citi equity.

Well, at least you can't say commercial banking is as boring as it used to be.