It’s been a few days since Citigroup failed the Federal Reserve’s stress test but the dust hasn’t exactly settled. In fact, the swirling winds have only picked up speed. Citi and its top executives are now facing the fire. Sadly, it may be the bank’s day-to-day staff that feels the brunt of the punishment.
While five banks officially failed the Fed’s annual stress test, aimed at assessing a firm’s ability to withstand a catastrophic economic event, Citi was the only large domestic firm to receive a failing grade, making it the headliner. The attention was compounded by the fact that Citi also failed in 2012, a brutal misstep that reportedly contributed to the ousting of Chief Executive Michael Corbat’s predecessor, Vickram Pandit. Corbat just stepped in the same bear trap, one he wasn’t ready for.
The Wall Street Journal on Friday reported that the results completely shocked Citi. Corbat himself was a half-a-world away in South Korea and had to sprint back to New York to face angry board members, employees and investors, who won’t see the dividend the bank had promised.
The backlash has been severe. Over the last few days, several analysts have called for the heads of Citi’s top brass, including CFO John Gerspach. The board was described to Financial Times by one insider as being “pretty pissed off.” One hedge fund manager told the Journal that he has liquidated all Citi shares after hearing the news. The stock fell 6% on Thursday and Friday.
However, all indications are that Citi’s management team is safe. That includes Corbat, Gerspach and risk head Brian Leach. After all, the board would have plenty of explaining to do if it dispatched its new leadership team after only 18 months, especially considering the coup that was needed to push Pandit out the door.
But changes will certainly be coming. They have to. Likely, Citi will need to further narrow its rather large footprint. Part of the Fed’s problem with the bank was its perceived inability to project losses around the “full range of its business activities and exposures.”
In his rather damning assessment of Citigroup, banking analyst Mike Mayo said the bank needed to “enhance expenses controls,” sell off parts of its retail business, accelerate the disposition of assets in Citi Holdings and “more aggressively retreat from low-returning markets.” None of that sounds ideal for the bank’s foot soldiers.
In interviews, banks mix in theory, fit and more general inquiries fairly evenly. You’ll need to be well rehearsed at answering all three, but keeping up with the industry news is critical, as you’ll see from these real-life examples.
If you’re considering taking a banking job in London, U.S. banks are where you want to be. Compared to domestic banks, bonuses were 20% higher for Londoners at U.S. firms. The average bonus at German banks trailed by nearly 50%.
J.P. Morgan ranks sixth in cash equities trading, but it doesn’t plan on being there for very long. “Third or fourth place would be a realistic medium-term ambition, with second or third in the long term,” said Tim Throsby, global head of equities in London. The only bad news is that J.P. Morgan plans to make its move with its current staff.
Bankers accused of rate-rigging often fade away from the spotlight, mostly due to the fact that no one will hire them. Former Citi trader Chris Cecere, accused in 2011 of rigging interest rates, has just accepted his second buy-side job, this time at Element Capital Management in New York.
Hedge fund OVS Capital Management is closing its doors after its founder, Sam Moreland, announced his intention to retire. Moreland is just 48, leaving some questions about the reasoning behind the move. Still, the firm never had a losing year after being founded in 2010.
Liar’s Poker author Michael Lewis has a new book coming out today that is expected to shine a rather unflattering light on high-frequency trading. The book debuts just days after Nasdaq said regulators won’t put rules in place to stop the lucrative practice.
John Simmons, J.P. Morgan’s co-head of North America financial institutions group, has been promoted to co-head of middle-market banking. He’ll have the job all to himself at the end of the year when Steve Walker retires.
Buzz Around the Office
The U.S. government can save $400 million annually in paper and ink costs if it changes the font it uses from Times New Roman to Garamond. A 14-year-old figured this out.
Quote of the Day: “Credit is just a pretty name for debt.” – Richard Russell