Poster-child of Mal-Performance: Citi, Wow Deja Vu' ?
Citigroup has been a poster child for many things in the last few months...actually over the last decade. As such they make a good example of digging into a company to examine it's current situation, performance and outllook. Now they've faced a myriad of problems and bad news, much of it self-inflicted, as it turns out. And the bad news keeps on coming with recent writeoffs, more layoffs and more and more MSM media coverage of the sort "can anybody run Citi ?".
The standard story that's been built up is that Sandy Weill put together a giant financial super-market thru astute deal-making but his successors have failed to translate that vision into executable reality. There's a lot of truth to that story but even for a standard mythology it tells us only about 1/2 and reinforces the storyline that Weill himself has been selling.
As a start for digging into it we've collected a bunch of readings from fairly recent reports on the writedowns and earnings, key analysts take on capital and dividends and headline stories on the workability of Citi. Where this all comes together is that this year is the 10th anniversary of Weill's legerdemain and the newest CEO, Vikrim Pandit, just gave his first major presentation to the investment community telling us what he's found, what's being done to fix things and where they're going. Not surprisingly much of the reaction to his pitch is..."oh no, not that same old leaner, meaner story again". Actually we happen to think that the presentation, which we have reviewed is superb, simple, both broad and deep and, if properly executed, indicates the beginnings of the same kind of turnaround that Alan Mullaly is orchestrating at Ford. And by the same approach.
Consider the chart of Citi's stock at right as being the initial starting point and main evidence for
the Weillology of "my successors" screwed it up. On the surface it would seem to support his argument. At least until you take a closer look. Notice that the giant runup in price began in the early 1990s, not with Weill's magic touch. Which means a great deal of it had to do with the overall runup in the markets in the '90s. The other thing one would want to ask when looking at a chart of this length is what would inflation-adjusting it tell us ? A third small detail to notice is that once the economy slowed and the bubble in mainstream stocks starting deflating Citi, on Sandy's watch, didn't do particularly well. At minimum he wouldn't appear therefore to have created a vast differential in performance.
What we think happened is that he put a lot of stuff together, ran off the key operating/strategic exec (Jaime Dimon) who was required to turn that mess into an integrated whole and left a whole bunch of organic problems to his hand-picked successor. When Prince took over he ended up having to jettison a lot of businesses. clean-up $Bs of legal and operational problems and try to repair the lack of controls and management system as well as the culture. Unfortunately while he did pretty well on the first part the second wasn't his forte. And worse he let himself be seduced by the performance Sirens into making some really dangerous decisions. Summarized in the "while the music's playing you've got to keep dancing" quote. Well actually not. What they pay the senior executives for is to dance with style, grace and skill, to know which dances they're good at and which not, to sit out the bad ones and to leave before the party's over. Looking back it looks like Prince got it all wrong.
So what's Pandit going to do ? If you'll recall we've suggested two major mantras, dashboards or filters for thinking about things. The first is the Economy-Industry-Company mantra. In other words the continuing downturn in the Economy will continue to impact Citi's performance while the fundamental re-thinking of the Finance Industry that needs to go will, or should, trigger major changes in strategy, operations and business models.
The other major dashboard/evaluation mantra we've suggested is that a high-performing company needs to: 1) Have a fundamental value proposition and a Business Model/Strategy that translates that into specifics. And 2) it needs to be able to execute against the strategy in an aligned way at the most fundamental level. And finally, 3) it requires a management system that makes sure everybody is marching to the same drumbeat and rhythm where people are held accountable for delivering on their responsibilities. And conversely that the things they are held accountable for are the things they are responsible for, i.e. have control over.
Citi as an entity failed all those tests thruout the last decade. Now the question is can Pandit fix them. We'll take that question up in our next post.
Citigroup Readings
Citigroup stumbles again -- Citigroup delivered yet another devastating quarterly loss Friday, this time losing more than $5 billion due to troubling results in its fixed-income business and higher consumer credit costs. The New York-based company also recorded $12.1 billion in writedowns, nearly half of which came from subprime-related direct exposures.But Citigroup (C, Fortune 500) shares gained nearly 7% in pre-market trading as its quarterly revenue topped expectations. At the time, the company also announced a number of drastic cost-cutting measures, including slashing its dividend and plans to eliminate roughly 4,200 jobs from the company's massive global workforce. This time around, the company did not announce any plans to cut additional jobs, nor did it announce any new capital raising plans. Citi, however, did offer some surprises, by reporting better-than-expected top line growth. The company reported revenue of $13.22 billion for the quarter, up sharply from the previous quarter, but nearly half of $25.46 billion a year earlier. Analysts had expected the company to report a loss of 95 cents a share on revenue of $12.77 billion, according to analysts surveyed by earnings tracker Thomson Financial. Citigroup CEO Vikram Pandit blamed the results on ongoing market turmoil and tough credit conditions, adding that Citi would continue to implement its recent strategy of shedding those parts of the company that did not fit its core business model. Citigroup Reports $5.1 Billion Loss, to Cut 9,000 Jobs
Citigroup May Scrap Dividend, Raise Capital as Losses Rise, Whitney Says Citigroup Inc., the biggest U.S. bank by assets, may cut or eliminate its dividend as losses escalate this year, Oppenheimer & Co.'s Meredith Whitney said.The analyst tripled her 2008 loss estimate to 45 cents a share and reduced her 2009 profit estimate to 90 cents a share from $2.50. New York-based Whitney in October correctly predicted two months in advance that Citigroup would slash its dividend to preserve capital. ``The company has seriously constrained earnings power,'' she wrote in a report today. This may force Citigroup to ``seek additional capital from outside investors.'' Citigroup Sells $6 Billion of Hybrid Bonds to Boost Capital After Losses
Citigroup's Reorganization Strategy Explained Citigroup is reorganizing its Wealth Management Units and Mortgage Units. Let's see what we can learn about its silo busting and silo building strategies, starting with wealth management. Reuters is reporting Citigroup reorganizes U.S. wealth management unit. “Citigroup Inc is reorganizing its U.S. wealth management unit to focus on helping clients based on their net worth, according to an internal memo dated Monday.” Exactly how does this eliminate silos? It seems to me that 4 silos were created out of one bigger silo. Worse yet, there is now duplication between silos. Are "high net worth" clients now second class citizens getting second class service or even second class advice? Does it take special skills to handle an "ultra-high net worth" client vs. a "high net worth" client? Does it take different skills to handle a "high net worth" client vs. an "emerging affluent" client? When someone moves up from "emerging affluent" to "high net worth" exactly what is the handoff procedure? The best way to eliminate silos would be to sell the entire Smith Barney unit while something can be gotten for it. I said the same thing to GM about GMAC, but they pissed away time and money and still made the wrong decision to keep half of it. Citigroup's Two Part Strategy Explained Big silos will be split into small silos Small silos will be combined into one big streamlined silo This is an ingenious plan. Not many could have come up with it. It will be a travesty of justice if big bonuses are not handed out for this fine effort. What’s Pandit’s plan at Citi?, Citi hits the private equity ATM
Can anyone run Citigroup? Can any CEO, this newest one included, actually manage Citigroup, a company that simply may be too big and complex for any boss to wrestle to the mat? On that, we can give you the opinion of one particularly interested and well-placed individual. Talking in April to Fortune in his minimally decorated Manhattan office, a few floors above Park Avenue's constant traffic, Pandit himself said that without question Citi can be managed. It is only a matter, he said, of people, organization, and execution. And by the way, he's not going to break it up. Right now, there's no way to know whether Pandit truly has this job scoped out or has just been overly influenced by having the levers of the Citi franchise suddenly in his hands. Decisive answers about the company's manageability will come into view only over time, amid the certain attention of regulators, competitors, and just plain followers of high business drama. In this story, for which we interviewed many current and former key players at Citi, we'll take a hard look at how the banking giant arrived at its current condition and hear from Pandit about his plans to revive it. Lurking behind those dueling views is the Lost Decade, the period from the euphoria of April 6, 1998 - announcement day for the merger - to today's subprime sinkhole.
Blue-Light Specials at Citigroup as Its New Chief Plans a Revival 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. Together, all these sales could raise billions of dollars for Citigroup at a time the bank is feverishly raising capital. 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. At the same time, Mr. Pandit vows to “break apart the culture” and demand better performance. To do so, he has brought in executives 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.
- Pandit's Turnaround Plan for Citigroup May Lead to Asset Sales, Staff Cuts
- Citigroup's Pandit Plans to `Wind Down' About $400 Billion of Bank Assets
- Citigroup targeting 9 percent revenue growth
Pandit of Citigroup Plots a Turnaround But Not a Breakup In his first major presentation to investors and analysts since taking over in December, Mr. Pandit confirmed Friday that he has no interest in breaking up the financial conglomerate, though it will dump about $400 billion in assets during the next two to three years. Mr. Pandit's affirmation of the supermarket strategy -- at Citigroup's core since the 1998 merger that created the New York company -- came with a vow that he would push to build the cohesive corporate culture and integrated back-office and technology systems that Citigroup has lacked. "In a sense, the 1998 merger was never completed," he said, leaving Citigroup with 16 different database centers -- when it really needs just two or three -- and roughly 25,000 employees to oversee the disparate systems. "We're finally going to merge it all," Mr. Pandit said at the 3½-hour meeting.The remarks left some analysts and investors, who were crammed into an auditorium at Citigroup headquarters in midtown Manhattan, with a sense of déjà vu. Last year, Mr. Pandit's predecessor, Charles Prince, emphasized a leaner, meaner approach, even as skepticism was mounting on Wall Street.