The Death of Old Lane

Last Thursday's Wall Street Journal carried an article about the final death of Citigroup CEO's hedge fund, Old Lane, entitled "Citigroup To Close Hedge Fund; Blow to CEO."

The piece details the fund's founding, growth, purchase by Citigroup, at Chairman Bob Rubin's insistence, and, then, its demise.

But, a blow to Pandit? Hardly. Granted, $100MM of his $165MM payday for Old Lane's sale is still stuck in some sort of successor fund. Let's say he even loses 80% of that. Pandit still nets, right now, before taxes, $85MM.

That's right. Pandit was able to off-load a turkey of a hedge fund with less time operating in the public markets than any other financial institution would tolerate before even considering to invest large sums in it, let alone buy it. Remember, Pandit never actually ran a hedge fund before. He was a middle-office guy at Morgan Stanley.

So basically, after getting helped to leave Morgan Stanley amidst the scuffling a few years ago, Pandit and his colleagues started a hedge fund and ended up having one of America's largest commercial banks ask to buy it at an inflated price.

I think it's fair to say that most Americans, and even a lot of commercial bankers, would feel extremely fortunate to have failed at operating a hedge fund and be paid at least $85MM, pre-tax, for the privilege.

Don't you?

How in the world is the closing of Old Lane a blow to Pandit? Rubin, yes. Pandit, no.

If anything, it simply clarifies how lucky Pandit was, and how much teflon seems to be adhered to him now. That nobody even considers that the business and 'record' that attracted him to Citigroup's Chairman and board, now being discredited, are grounds to rethink Pandit's job qualifications says more about how badly-overseen Citigroup is than how inept Pandit is.

Of course, Pandit has plenty of time to provide more evidence, in addition to his so-far inept record as Citigroup CEO, that he is, in fact, pretty inept as a commercial bank CEO.

But this month, Bob Rubin should be taking the axe for his appallingly bad judgment in the Old Lane affair.