He was President of Morgan Stanley’s Investment Banking Group, when, in 2005, he quit with a few friends to start his own hedge fund.

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To prove it, Patton went home and, you guessed it, slept! He used to famously quote, “Never tell people how to do things. Tell them what to do and they’ll surprise you with their ingenuity.”

On September 15, 2008, Citi’s shares plunged by 15%, & on September 16, by another 7%, as news of Citi’s exposure to Lehman’s bankruptcy came to light. Lehman named Citigroup amongst its “largest unsecured creditors,” with a numbing $138 billion of Citigroup’s money tied up in unsecured Lehman bonds. Consider that Lehman’s gross outstanding debt is $613 billion dollars! So Citi is exposed to almost an unbelievable 23% of Lehman’s crash!

As B&E had analysed just a few weeks back in its cover issue Murders & Acquisitions [August 7, 2008], Vikram’s predecessor, Charles Prince, is an equal, if not better conspirator in this bloodbath. In 1998, he, as the Chief Administrative Officer [under Sandy Weill, then CEO], engineered the utterly disastrous $140 billion merger of Citibank with Travelers Group ten years back. Former Citi CEO John Reed, who engineered the deal with Sandy Weill, confessed to the Financial Times in April 2008, “The specific merger transaction clearly has to be seen as a mistake,” and he was ‘unclear whether the company’s model or management deserved the greater share of the blame for its problems.’

Coming back to Chuck, this Prince ensured after the Travelers Group fiasco that the company jumped into the mortgage black hole. Till date, Citigroup has been forced to write off almost $41 billion because of Prince’s royal exigencies. Ultimately, he was “eased out” in November 2007. And when Citi recruited Vikram Pandit in December 2007, paying him a never before seen signing bonus of $241 million, one wondered whether rather than the pig, it was sense that had all but gone to the butcher’s. Citi’s M&A focus has clearly destroyed it, some say beyond repair!

“In recent years, Citi’s acquisition strategy had focused on building its already considerable international presence,” pointed Joseph Scott, Analyst, Fitch Ratings, to B&E. “M&A activity has been relatively modest... and more focused on emerging markets,” agreed Tanya Azarchs, MD, Standard & Poor’s Ratings Services to B&E. Sadly, such M&A activity over the years [like taking over Egg Plc, ABN Amro’s mortgage operations and Nikko Cordial] made Citi grow beyond reasonable span of control into insensibly risky businesses [Lehman type exposures included]. Yes, there have been ‘good’ hits too. The 2000 acquisition of Associates & 2004 acquisition of Wells Fargo Finance operations have created a good franchise in marginal consumers.


For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist).


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