Pandit Leaves Citigroup, ‘Paltry’ Pay Behind

by Dan Burrows | October 16, 2012 11:37 am

Let’s face it: Money is everything on Wall Street, meaning the simplest explanation for Citigroup (NYSE:C[1]) CEO Vikram Pandit’s abrupt decision to tell the bank to take his job and shove it was almost certainly about the fact that he only makes $15 million a year.

Consider that over at Goldman Sachs (NYSE:GS[2]), the investment bank has set aside an additional 15% in average compensation per employee for this year, or $11 billion through the first nine months of the year. The news comes as part of Goldman Sachs’ third-quarter earnings report, in which the firm beat Wall Street estimates[3] by 66 cents a share and raised its dividend.

Pandit’s counterpart at Goldman Sachs, Lloyd Blankfein, had total compensation of $16 million in 2011 and is set for a nice bump this year.

Oh, the indignity.

Citigroup’s stock was up 40.5% for the year-to-date through Monday, while Goldman Sachs had gained 38.3%. Citigroup posted net income of $4.4 billion in 2011, while Goldman Sachs squeezed out just $962 million in profit.

As InvestorPlace writer Tom Taulli writes, Pandit became CEO in late 2007 and led Citigroup through the wrenching financial crisis[4] by aggressively cutting back on costs and raising capital by unloading assets. By 2010, Pandit brought the giant bank back to profitability and was able to pay off the federal government’s bailout loan of $45 billion.

And all Pandit gets is a lousy $15 million. You call that gratitude?

True, Citigroup’s stock is off more than 88% since Pandit took the helm at the end of 2007, while Goldman Sachs is down only 50% from its pre-financial crisis peak, but then, the original too-big-to-fail financial supermarket was a raging tire fire when Pandit came on board.

To his credit, Pandit kept the bank from being nationalized. He sold off a host of non-core assets and focused the bank’s strategy by betting big on international markets. The balance sheet is healthier and so are results.

Yes, Citigroup posted a big drop in quarterly earnings[5] Monday after one-time charges, but earnings beat analysts’ forecast, and the overall quality of the quarter was met with thunderous applause by traders and investors alike. Indeed, shares in Citigroup jumped 5.5% Monday to outpace the S&P 500’s gains.

Of course, that only added to the shock (and it is a shock) of Pandit leaving not only the executive suite, but the board of directors, too.

He’s out. Kaput. Finished.

The Wall Street Journal reported that Pandit quit because of conflict with the board[6] over strategy and the performance of some businesses, notably those serving institutional investors. Henry Blodget over at Business Insider[7] figures the resignation had something to do with Pandit’s miserly-by-Street-standards pay package.[8]

The way Pandit quit — in what amounts to a huff — suggests the truth is all of the above. As Blodget says, CEOs don’t just resign effective immediately, so something obviously happened. And although $15 million is a lot of money for mere mortals, in Pandit’s world, it’s peanuts.

Remember: Pandit came to Citigroup after it bought his hedge fund for $800 million. Citigroup shut down the underperforming fund a year later, making Pandit $165 million richer.

When you can make that much money from failure, why settle for less from success?

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2012/10/pandit-leaves-citigroup-paltry-pay-behind/

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