Citi's CEO Search Gets Tougher

Now that John Thain has accepted the top job at Merrill, Citigroup will have to look farther afield for a new chief

by Steve Rosenbush

Nicholas Roberts/Bloomberg News

Now what about Citi?

With John Thain's decision to become chief executive at Merrill Lynch (MER) (BusinessWeek.com, 11/15/07), Citigroup ( C ) has lost a leading candidate in its own CEO search.

There aren't too many people with the skills or experience to run Citi in the best of times—and these are far from the best of times. With the global financial conglomerate saying it could suffer losses of $17 billion in the credit markets (BusinessWeek.com, 11/1/07), the list of potential leaders with the capacity to run Citi is exceptionally short. Even seasoned stock analysts say there are no obvious choices to succeed former Citi CEO Charles Prince, who was ousted in the wake of the company disclosing its potential losses. "No idea," says Meredith Whitney, the influential CIBC World Markets analyst who called for Prince's replacement several days before he was forced out.

A Dwindling List of Candidates

Citi Chairman Robert Rubin is leading the CEO search. Rubin, 69, a former Treasury Secretary and Goldman Sachs (GS) co-chairman, has indicated he isn't seeking the job. Former Citi CEO Sandy Weill told CNBC he's not interested, either. On Nov. 5, the day after Prince's ouster, Rubin responded in vague terms (BusinessWeek.com, 11/6/07) to a question about the criteria for the position. "It's a bit intangible," he said. "It has to be somebody who can drive the vision, drive the execution."

One leading candidate could be Vikram Pandit, the head of investment banking and alternative investments. Pandit, a onetime president of Morgan Stanley (MS), actively worked to keep Thain out of Citi, going so far as to threaten to quit, according to people inside and outside the company. But Pandit is no shoo-in. He has never been CEO before, and he joined Citi less than a year ago, when the bank bought his Old Lane hedge fund. The hedge fund is part of the alternative investments unit, where results have been less than inspiring since the acquisition of Old Lane. Revenue from alternative investments dropped 63% in the third quarter, to $125 million, down from $334 million the previous year.

No other insider candidates are likely to emerge, according to one person familiar with the matter. And the list of outside candidates is brief. The New York Times and Financial Times reported Wednesday that Robert Willumstad, a former Citi chief operating officer, is one possibility. But Willumstad, who is chairman of insurance giant AIG (AIG) and runs private equity firm Brysam Global Partners, has been in his current position for just over one year, making a move awkward, one Citi insider says.

A Challenge That Requires Broad Experience

Finding a leader who can run Citi's range of businesses, which includes institutional and consumer banking, is particularly tough. Another former Citi executive, Richard Kovacevich, 64, could be a contender, according to the report in The New York Times. He recently retired as CEO of Wells Fargo (WFC), where his experience was mostly in retail banking. BlackRock (BLK) CEO Laurence Fink, who was a leading candidate for the Merrill job, has lots of experience in institutional banking but little with the retail side of the business.

The difficulty of finding someone with broad enough experience to run Citi's sprawling empire may feed debate about whether the company's current structure makes sense at all. Investors dissatisfied with the stock price have been pressing for a breakup of the company for several years. William Smith, senior portfolio manager of Smith Asset Management and holder of 70,000 Citi shares, is one of those calling for Citi to sell off assets (BusinessWeek.com, 11/8/07). Smith estimates that Citi's breakup value is $67 a share, more than double its value today. On Nov. 15, Citi's stock fell 4%, to $34.58, down more than 30% from a 52-week high of $57.

Still, Rubin said on Nov. 5 that he thinks Citi's current strategy is sound, suggesting the board isn't looking for a CEO to supervise a breakup. The board appears to favor a focus on better execution. With Pandit in charge of institutional banking, Citi may look for a CEO with experience in consumer banking, which would favor someone such as Willumstad or Kovacevich. But one way or another, Citi must find a CEO—and fast.

Rosenbush is a senior writer for BusinessWeek.com in New York.