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Citi's Chief Says Change Will Take Time and Patience

Vikram S. Pandit is doing some serious spring cleaning at Citigroup.

Since becoming chief executive in December, Mr. Pandit has been clearing out the corporate attic of weak businesses and unloading worrisome assets at bargain-basement prices.

In an effort to streamline the sprawling company and placate restive shareholders, Mr. Pandit has sold or closed more than 45 branches in eight states. He has also disposed of Citigroup’s headquarters building in Tokyo and its investment-banking base in New York and ditched more than $12.5 billion in loans used to finance corporate buyouts. And he has jettisoned the Diners Club credit card franchise, Citi’s commercial leasing divisions and a big pension administration unit.

Mr. Pandit is not done yet. After months of false starts, Citigroup is now trying to sell Primerica Financial, a life insurance and mutual fund company, according to people close to the situation. He is also looking to sell its back-office outsourcing unit in India and its Smith Barney brokerage firm in Australia. Some speculate he also may try to sell 340 bank branches in Germany, possibly to Deutsche Bank.

On Friday, at Mr. Pandit’s first major presentation to investors and analysts, Citigroup said that it planned to sell about $400 billion in assets over a five-year timetable. The bank also said it was seeking revenue growth of 10 percent a year from its core units and projected about $15 billion in additional revenue over the next three years from its restructuring effort.

“This will take time,” said Mr. Pandit, appearing stiff but confident behind a podium at Citigroup’s Park Avenue headquarters.

“There will be some early results but it will take patience,” he said, and there “may be some mid-course corrections.” Citigroup shares were down about 2 percent on Friday.

Together, the sales could raise billions of dollars for Citigroup, yet the moves also reflect a crucial shift in how Mr. Pandit plans to run the bank.

Mr. Pandit is intent on keeping Citigroup together, rather than carving up the financial conglomerate, as some investors are urging. But in a break from the financial supermarket model championed by Sanford I. Weill, who built Citigroup through acquisitions in the late 1990s, Mr. Pandit plans to focus on businesses and regions where Citigroup can generate the fattest returns.

“We have great hardware,” Mr. Pandit said. “The real question is the software and the operating system. During the three-and-a-half hour presentation, Mr. Pandit vowed to change Citigroup’s culture and demand better results. To do so, he has brought in executives, reorganized the management structure, and overhauled compensation so his managers have incentives to focus on what is best for the entire company, rather than their own corner of it.

“If it’s only thinking about my profits and losses, I’m going to hold that person accountable,” Mr. Pandit said in a recent interview. However, many changes to the new compensation program will not go in effect until next year.

The big question is whether Mr. Pandit can pull off this plan. His predecessor, Charles O. Prince III, made similar promises but was unable to keep the company on track. Many investors are skeptical, and with good reason: Citigroup’s share price has fallen 17 percent this year and is down 55 percent in the last 12 months. Many Citigroup employees are doubtful, too.

Some Citigroup bankers complain that Mr. Pandit has failed to communicate his vision, especially for the consumer banking businesses, which account for more than half of the bank’s profit. Decisions, they say, get bogged down by internal politics and a new top-down hierarchy. (Insiders say power rests with Mr. Pandit and a group of top advisers nicknamed the G-5. Mr. Pandit denies that.)

Overhauling Citigroup will be a long slog, and Friday’s presentation showed how forthright Mr. Pandit will be about the challenges ahead. It took more than three years before big rivals like JPMorgan Chase and Wells Fargo saw similar efforts start to pay off.

Those companies, unlike Citigroup, had the benefit of proven managers and a flush economy. Citigroup, by contrast, has suffered more than $40 billion in write-offs and is likely to absorb billions more. That will eat away at the money Mr. Pandit can invest to fuel the company’s future growth. The clock is ticking.

Gary L. Crittenden, Citigroup’s chief financial officer, said in a recent interview that selling sideline businesses was one way that Citigroup hoped to plug the holes in its balance sheet. Profits will be allocated to faster-growing businesses, including many overseas. “There is no particular urgency to sell any particular asset,” he said. “These are good businesses that are for sale, and we want to work with buyers who see them as a strategic fit.”

Citigroup has been down this road before, and the last time, things did not end well. In July 2004, Mr. Prince announced that the bank would hold a “garage sale” to sell businesses. Citigroup sold its Travelers Life and Annuity business and asset management arm, and part of its commercial leasing operations. It also quietly sold stakes in banks in Taiwan and Saudi Arabia, and the Nikko Cordial brokerage firm in Japan. But then, a few years later, Mr. Prince embarked on a $26 billion acquisition spree and strangely reinvested in many of those same areas, including buying all of Nikko Cordial.

These days, Citigroup is employing a five-step process to decide what businesses to sell, close or keep. Executives examine industry growth trends, market positions, geographic growth rates, business plans and financial results. Mr. Pandit and his team then make the final call.

Citigroup is hawking tens of billions of dollars of mortgage assets and buyout loans at deep discounts. It is closing bank branches in places like Florida and Connecticut, and finance offices in Mexico and Japan, after barreling into those regions a few years ago. It closed its mortgage lending warehouse division, sold a stake in Visa and a Brazilian credit card business, and will soon spin off the Nikko asset management group in Japan.

In mid-April, the company swallowed an after-tax loss of $325 million when it sold Citi Capital, a domestic equipment financing unit with about $13 billion in assets. And Citigroup said it would restructure Old Lane, the hedge fund it bought from Mr. Pandit for $800 million, after virtually all of its outside investors pulled out.

Some analysts worry that Mr. Pandit might even go too far and sell too much at fire-sale prices. Doing so might sacrifice future earnings and market share.

“Today, they are more focused on dumping ballast,” said Guy Moszkowski, an analyst at Merrill Lynch. “Then, they will have to turn their attention to growth.”

But Citigroup executives say that as bank pulls back in some areas, it will bulk up in more profitable ones, especially in Latin America, Asia and the Middle East.

But many analysts say more Citigroup businesses will be up for sale. Citigroup’s stand-alone consumer units, like its auto and student lending operations, are natural candidates. But the company might wait for better market conditions before pursuing a deal. Another business that might eventually be spun off is Citigroup’s large credit card operation, which Mr. Pandit has kept separate from the company’s consumer operations and which has been hampered by sluggish domestic growth.

During the presentation, Mr. Pandit said he believed that pumping more money into the credit card division’s marketing budget and running it more efficiently would restore its luster and make it an important part of the company.

Wall Street analysts and investors walked away from the presentation with a stronger sense of direction but still wanted granular more detail. “We’ve seen this play before,” said Jason Goldberg, a Lehman Brothers financial services analyst, after. “Hopefully, it has a better ending.”