Citi Faces Pressure To Slim Down
The government rescue of Citigroup Inc. reversed the perilous slide of the company's stock, but pressure is mounting on its executives and directors to do even more to stabilize the financial giant.
Citigroup's shares jumped 58% after federal officials announced an agreement late Sunday night to pour $20 billion of capital into Citigroup and absorb as much as $249 billion in potential losses on real-estate loans and securities held by the bank.
Citigroup executives acknowledged Monday that the government made it clear in weekend negotiations that it expects the company to continue to reduce its appetite for risk, and to seriously weigh more drastic actions, including possibly breaking up the company.
Gary Crittenden, chief financial officer, said in an interview that Citigroup has no 'preconceptions' about its vast array of businesses. 'The constituent parts could change,' he said. 'We're looking all the time to see if there are different possible combinations, either buy or sell, that make sense for the organization.'
Mr. Crittenden declined to comment on the scenarios being examined. Executives and directors have discussed potential mergers with other financial institutions or selling major business lines, people familiar with the situation said.
'This is a reprieve, but it's not a complete pardon,' said another person familiar with the matter, referring to the government rescue plan. 'Nobody's confused about that.'
The government did not push for the ouster of Citigroup's chief executive, Vikram Pandit, as part of the agreement, as it did with the CEO of American International Group Inc. when it bailed out that company. Still, as federal officials debated the structure of the plan, there was some disagreement on whether Mr. Pandit was at fault for the company's problems, according to people familiar with the situation. One name that Wall Street executives have mentioned as a possible replacement is American Express Co. Chief Executive Kenneth Chenault.
Spokespeople for Citigroup and American Express declined to comment.
News of the rescue pushed stocks sharply higher, with the Dow Jones Industrial Average climbing 396.97 points, or 4.9%, to 8443.39. That close was the highest since Nov. 14. Still, the Dow is down 40% from its all-time high in October 2007.
People involved in the frenzied bailout negotiations said in interviews that Citigroup executives realized by the middle of last week that the plunge in the company's shares -- they fell 60% last week -- posed a major threat to the company's viability.
Mr. Pandit now finds himself under intense pressure to take major steps to stabilize the company. He faces a board of directors, clients and shareholders who remain nervous about Citigroup's stability, and government regulators who seem prepared to keep the company on a tight leash.
Since becoming CEO last December, Mr. Pandit has embraced Citigroup's existing structure, resisting calls to dismantle the sprawling global enterprise. Mr. Crittenden said on Monday that the company's 'fundamental strategy basically stays the same, but we're open-minded.'
The company faces swelling losses on loans that aren't covered under the government's loss-sharing agreement, which amounts to insurance on a $306 billion pool of assets. Under the plan, Citigroup will shoulder the first $29 billion in losses on that pool. After that, three government agencies will absorb 90% of any remaining losses, which amounts to $249 billion.
The arrangement covers Citigroup's portfolios of U.S. residential and commercial mortgages and its leveraged corporate loans, among other assets. The assets aren't just risky ones; the government insisted that the agreement cover entire asset classes, so that Citigroup couldn't simply dump toxic loans and securities in the lap of taxpayers.
Absent from the arrangement are Citigroup's giant credit-card business, where defaults have been rapidly piling up, and its overseas lending operations, which also are showing signs of stress.
While the government deal bolsters Citigroup's capital ratios, 'we are concerned that losses may eventually exceed the government's backstop,' said Standard & Poor's equity analyst Stuart Plesser.
In exchange for covering hundreds of billions of dollars in potential losses, Citigroup is issuing the government a total of $27 billion in preferred shares, in which the government will receive regular dividends. The government now holds a 7.8% stake in Citigroup, which entitles it to $3.4 billion a year in dividends.
Last Wednesday, Citigroup executives began discussing the idea of seeking a show of support from the government if the stock price kept declining. By the end of the week, a small number of clients, including wealthy customers of Citigroup's private bank, had started defecting. Executives and government officials worried about a potential exodus.
Confidence 'began to shake,' said a person with direct knowledge of the situation. 'It was a complete death spiral and we had to stop it.'
Bank officials contemplated what they might do to pave the way for federal assistance, such as agreeing to steps to avoid foreclosing on delinquent mortgage customers.
On Friday, Citigroup Vice Chairman Lewis Kaden and investment banker Edward Kelly spoke by phone with New York Fed President Timothy Geithner to discuss the worsening situation. Mr. Geithner, President-elect Obama's nominee for Treasury secretary, encouraged the Citigroup executives to come up with ideas for how the government could help stabilize the company.
Inside the government it was far from clear that action was needed. Citigroup's stock price was tumbling, but there was no sense the company was in danger of failing. But over the weekend, as they pored through Citigroup's books, it became clear to top officials that the company needed government help.
Citigroup pushed for a deal similar to its unsuccessful agreement to buy Wachovia Corp. with financial backing from the U.S. government. In that deal, which unraveled when Wells Fargo & Co. emerged with a higher bid, the government had agreed to protect Citigroup from losses above a certain level on more than $300 billion worth of assets.
On Saturday morning, Citigroup executives sent a blueprint based on the Wachovia structure to government officials.
Policymakers balked, thinking the plan too beneficial to Citigroup. If the U.S. were to take another equity stake, Treasury Secretary Henry Paulson wanted it to be small, since otherwise the government would end up owning Citigroup. The officials worried that appearing to nationalize the company would further roil markets. They agreed that $20 billion was the limit for what they would invest.
The policymakers also discussed whether Mr. Pandit should remain CEO, say people familiar with the talks, and agreed that removing him would send a bad signal to the markets and potentially destabilize the company.
Later that night, the government informed Citigroup that it was comfortable with a limited cash infusion and a loss-sharing agreement modeled on the Wachovia deal.
Not everyone was satisfied. FDIC Chairman Sheila Bair harbored reservations about a bailout because it exposure her agency to big losses. She wanted government officials to consider an arrangement that would be more punitive to Citigroup shareholders. An FDIC spokesman said 'limiting the potential exposure of the deposit-insurance fund is always a high priority for Chairman Bair.'
On Sunday morning, the disagreement ignited a heated debate between Ms. Bair and her counterparts at other agencies, say people familiar with the discussions.
As the day dragged on, Citigroup executives grew frustrated that they were being kept in the dark by the government.
Around 6 p.m. on Sunday, Mr. Paulson called Ms. Bair to talk to her privately. He told her helping Citigroup was important and that if she couldn't play a meaningful role, the Fed and Treasury could do it without her.
Ms. Bair agreed to be involved but would only accept the FDIC taking $10 billion of the losses, with the Fed guaranteeing most of the rest.
Two hours later, enough of the details were worked out that Mr. Pandit briefed Citigroup's board on the plans. The directors approved it with little debate shortly before 9 p.m. Around 11 p.m., Mr. Pandit signed the agreement.
David Enrich / Deborah Solomon
Vikram Pandit花旗首席财务长加里•克里坦登(Gary Crittenden)在接受采访时表示，公司尚未形成调整其庞大业务种类的“设想”。他表示，构成部分会有变化。公司无时不刻都在寻找是否有不同、对组织有意义的可行合并方案，无论是收购还是出售业务。
政府在协议里并未要求花旗首席执行长潘伟迪(Vikram Pandit)下台，这一点与政府在救助美国国际集团(American International Group)时对其首席执行长提出的要求不同。不过，据知情人士说，在联邦官员讨论计划的结构安排时，对于潘伟迪在花旗的问题上是否有过错存在不同意见。华尔街人士提到的一个可能接替潘伟迪的人选是美国运通(American Express Co.)首席执行长肯尼斯•钱纳特(Kenneth Chenault)。
尽管与政府的交易提高了花旗的资本充足率，但标准普尔(Standard & Poor's)股票分析师普雷瑟尔(Stuart Plesser)说，我们担心损失额最终会超过政府救助的范围。
上周五，花旗集团副董事长路易斯•卡登(Lewis Kaden)和投资银行家爱德华•凯利(Edward Kelly)与纽约联邦储备银行行长盖纳(Timothy Geithner)通了电话，讨论了不断恶化的局势。盖纳鼓励花旗管理人员就政府如何能稳定该公司提出建议。当选总统奥巴马已提名盖纳担任下一届政府的财政部长。
花旗提出了同收购Wachovia Corp.时政府所提供的金融支持类似的协议。当初的这项协议最终以失败告终，因为后来富国银行(Fargo & Co.)向Wachovia出了更高的收购价。政府在那项协议里同意，如果花旗3,000多亿美元资产所造成的损失超出了一定水平，政府将提供保护。