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.
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Buzz Around the Office
More Like Times Old Roman (CNN)
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Quote of the Day: “Credit is just a pretty name for debt.” – Richard Russell