Why weren’t you invited? In late November, a group of elite bankers slipped away from their desks to join my editor and me for lunch at the Caprice restaurant in London’s fashionable West End. Those present included one of the wealthiest men in England, one of the most powerful men in England, a senior American investment banker running a wealth management business, a Swiss gnome and a gorgeous girl who works for one of the world’s top hedge funds. “Business lunches are supposed to be work. This was fun. What an eclectic and fascinating group of people,” a guest enthused in his thank-you note.
The purpose of the lunch was to mirror the purpose of this column: to step back from the demands of the day and review key financial trends, peppered by the odd morsel of market gossip. It is rare that financiers from different disciplines are able to exchange views, but they were emboldened by the chastity belt of Chatham House Rules (nothing spoken about is attributable). To qualify for an invitation you must be interesting, articulate and I must like you (which narrows the field considerably). One guest enjoyed himself so much that he muttered to me as lunch drew to a close: “Abigail, why can’t we do this every month?”
Several topics preoccupied my guests. Would the US economy enter recession in 2008 (the majority thought it would, although there was one passionate dissenter)? Were the worst of the banking write-downs behind us? Here there was less unanimity: guests generally felt there would be more losses to come but perhaps not as hefty as witnessed in the third quarter. And finally we had a lively debate about the future of Citi: who was in the frame to be anointed as Citi’s leader – a recipe for either a miserable or magnificent life.
Ruling Citi would be like ruling the Forbidden City. There is so much breadth to the institution that it would be hard for any one individual to span the various sectors: investment banking, consumer banking, wealth management and retail brokerage. And as for structure, I’ve had mud baths that are more transparent. Having pored over the Citi website, I’m still bemused by the difference and/or overlap between its two wealth management channels: Citi Private Bank and Smith Barney.
Executive privileges
Citi is proof of the adage: “You can’t be all things to all men.” A mole confided: “I’m all for breaking it up.” In my first column, published in April 2006, I queried the strategy and investment validity of Citigroup. Eighteen months later, I’m still asking the same questions, while the share price has fallen by nearly 35%. Of course, there’s been a lot of turmoil as heads tumble. Chuck Prince, the former Citi chief executive, is no longer chuckling (or dancing for that matter); Tom Maheras the former co-head of markets and banking, has departed; as has his henchman, Randy Barker (co-head of fixed income). Chad Leat and Mark Watson, former co-heads of global credit markets, have apparently been sidelined.
The shooting star investment banker Michael Klein (once tipped as the next Citi chief himself) may also be disheartened. Former Morgan Stanley banker Vikram Pandit was appointed by Prince as chairman and chief executive of a new institutional clients group in mid-October and thus overtook Klein in the hierarchy. Maheras’s successor, Jamie Forese, had to report to Pandit. One mole murmured: “Klein reminds me of Icarus. He flew too close to the sun.” A well-connected chief executive at a rival firm was more ferocious: “It was an open secret that Klein and Maheras never got on. If they had united instead of squabbling like children, Citi would have been theirs for the taking.” Of course in mid-December Pandit was named chief executive of the whole Citi group.
The future direction of Citi lies with its board as well as with Pandit and the new chairman, Sir Win Bischoff. Indeed, some would say the current malaise of Citi is attributable to its board. In my last column, I discussed the drift of top talent away from investment banks. Commentators are talking about a lost generation: the bright bankers who turned their backs on Wall Street to start their own firms. Think Steve Schwarzman of Blackstone, Wesley Edens of Fortress or Guy Hands of Terra Firma. Equally, I feel I have identified another powerful trend – top-quality individuals do not want to sit on the boards of big banks. “Hassle and red tape,” a mole snorted. “Sinecures for those who want to feel important and fly in private jets but can’t make it on their own.”
This criticism is not necessarily applicable to the Citi board. But what I find worrying is that, before the elevation of Pandit and Bischoff, Citi’s main board was dominated by American men (Roberto Hernandez Ramirez, chairman of Banamex, is an obvious exception). Am I the only person who finds this bizarre for an organization that claims to be a global powerhouse? And by the way, Citi bought Banamex in 2001 and Ramirez sort of came with the deal.
Other Citi board members include the chief executives of industrial companies such as Alcoa, United Technologies, Dow Chemical, Time Warner and Xerox. How much do these individuals know about the technicalities of banking? Are these people qualified to deal with the horrors thrown at them by the credit crunch? I wonder if any board member – with the exception perhaps of Robert Ryan, chief financial officer (retired), Medtronic Inc – knew what CDO and SIV stood for six months ago.
The roll-call of the non-financial specialists on Citi’s board continues: Kenneth Derr, chairman (retired) Chevron Corporation, Judith Rodin, president Rockefeller Foundation, and Franklin Thomas, consultant, TFF Study Group. TFF stands for The Ford Foundation, which is a not-for-profit development assistance group focusing on southern Africa. TFF is obviously a worthy cause, but where is the synergy with running a global financial services firm?
I am intrigued by board member John Deutch, a professor at the Massachusetts Institute of Technology. Originally, I thought Deutch must be a business specialist but he is associated with MIT’s department of chemistry. So again, no direct banking expertise. However, Deutch was director of Central Intelligence in 1995–96. Was Deutch’s espionage background useful to Chuck Prince? After all, Prince did fire Todd Thomson, formerly head of wealth management, allegedly for seeing too much of the comely journalist Maria Bartiromo during office hours. How did Prince substantiate his facts – or was the “friendship” an open secret at Citi?
