You may recall last week’s announcement and sudden departure of Citigroup CEO Vikram Pandit. The Securities and Exchange Commission remembers it well and as a result, it’s launched an investigation into what really happened. It’s possible they’re looking for evidence that the board of the directors disclosed certain information.
Just a Probe
So far, the probe is considered informal by the SEC and there’s not yet been a “full blown” investigation initiated. That could soon change, though, if it uncovers certain information. Those close to the probe say the SEC has been paying attention since the announcement. There have been massive differences in the many stories that have been released since his departure, but all parties insist his decision to leave was his alone.
Vikram chose to submit his resignation and the board accepted it,
one of the bank’s analysts said the day of the announcement.
Meanwhile, some media outlets are questioning those assertions and say Pandit was told the day before he resigned that if he didn’t, he’d be fired instead. Many say they’d lost confidence in his focus and abilities to run the bank. They demanded his resignation, said a spokesperson for Fox News who was privy to the various insider conversations.
Another interesting fact is the timing of the departure. Within hours of releasing third quarter earnings, Pandit submitted his resignation that would go into effect immediately.
There’s another important dynamic, too. There have been months of disagreements behind closed doors. Especially with the board of directors. Those disagreements were soon becoming more heated when the bank overstated the value of its Smith Barney brokerage sell. You may recall it’s being sold to Morgan Stanley. The disagreements are occurring because of a $3 billion write down the bank was forced to take as a result of the sell. Many insiders are saying Pandit is to blame for the loss.
For now, Citigroup isn’t talking, except to confirm the probe by the SEC.
There were many senior executives who were said to have been “stunned” when hearing the news of Pandit’s departure. It’s also being reported even they aren’t entirely sure what happened or why Pandit quit or was fired. As soon as that news broke, however, it was announced Michael Corbat would be taking over as CEO. Some say this is a sure sign that Chairman Michael O’Neill is in “full charge”. Pandit wasn’t the only one who quit; the next day, Chief Operating Officer John Havens also resigned over his compensation package. Even if it is not clear precisely what led Pandit to quit (there are numerous possibilities), the decision to swiftly name Corbat as CEO only reiterates the fact that O’Neill is now fully in control of the bank, according to one person familiar with Citigroup.
On a conference call with investors and analysts Tuesday night, O’Neill gave assurances that there were no other bombshells to drop and that the “board remains comfortable with the strategy of the firm.”
He also said the board had considered outside candidates before choosing Corbat and that Corbat knew he was under consideration for the job for “quite some time.”
Familiar with Scandals
This isn’t the first time Citigroup has faced massive – and very public – scandals. In September 2004, Citigroup told all 40,000 of its employees in an email that it “regretted” executing a $13.5 billion bond trade that caused big problems for it and its European rival traders. Britain’s version of the SEC began an investigation. Then CFO Thomas G. Maheras said the trades were “innovative transactions sought to access the liquidity in European bond markets”. He went on to explain it didn’t meet the banks high standards and as a result, “we regret having executed this transaction”.
The bond sale resulted in massive concerns in Europe’s markets. Citigroup ended up selling 11 billion euros (or at that time, $13.5 billion) of European government debt within minutes, mainly through electronic trades. It then bought a portion of it back at lower prices less than an hour later, rival traders claimed. This wasn’t illegal; however, traders in Europe were furious because they said it was in violation of their understood agreements to not drive down prices via market flooding.
Remember, too, at that time, Citigroup had plenty of problems here in the states, including class action lawsuits regarding its business practices with WorldCom and Enron.
For now, the public relations problems the bank is facing is as worrisome as anything else
If the board pushed Pandit out, then Citigroup issued a false statement,
one analyst said,
The reason for the CEO’s departure is material, and Citigroup had an obligation to disclose any information necessary to render its statements fair, accurate and complete. If the board forced Pandit out, Citigroup didn’t do that.
It should be noted that Bloomberg says Pandit was pushed out:
Citigroup Inc., which last week ousted Chief Executive Officer Vikram Pandit over management missteps…
Meanwhile, Reuters reports he quit:
Citigroup Inc’s Vikram Pandit quit as chief executive on Tuesday after months of simmering tensions with the board …
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