Where Pandit Is Taking Citi

Citigroup's new chief executive embraces the do-it-all strategy, rejecting calls for a breakup

One estimate put Citi's breakup value close to its current price Gerald Holubowicz/Polaris

by Mara Der Hovanesian

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Citigroup CEO Vikram Pandit has made up his mind: The world's largest bank will remain intact. After months of speculation, the new chief has rejected calls for a breakup. "You couldn't design a better footprint or get a better set of assets if you had to build a bank from scratch," Pandit told BusinessWeek. "This is clearly the right model."

Pandit's ringing endorsement of an all-in-one financial-services company may test the patience of weary investors, who worry that Citi (C) is too big to manage or grow. Citi's first-quarter profits, which will be announced on Apr. 18, won't quell those concerns: The bank faces billions of dollars in additional writedowns from the mortgage mess. "Let's be clear, the earnings report is going to be ugly," says William T. Fitzpatrick, an equity analyst at Optique Capital Management. "The numbers are anybody's guess."

When Pandit took the helm on Dec. 11, he vowed to make "an objective and dispassionate review" of the company. Now after spending the first 130 days of his tenure "pressure-­testing" more than 50 different units, Pandit remains committed to four global groups—cash management services, investment banking, wealth management, and credit cards. Some contingents had reasoned that Citi would be better off without investment banking or U.S. credit cards. Pandit argues those businesses are critical to the bank's strategy of selling financial products all along the banking food chain from companies to consumers. "It's no longer the model in question now. It's the execution," says the 51-year-old Pandit. "Everybody before me has wrestled with that."

Pandit's Plans

As Pandit sees it, Citi's international businesses will be integral to his vision. He considers the bank a global powerhouse with unrivaled reach. But in the past, he says, the different units often operated independently without a worldwide perspective. To help address that problem, Pandit has added chiefs for each region.

Pandit's conclusions come as the result of intense discussions not only with new executives but with former chiefs such as his predecessor Charles O. Prince. Pandit has also conferred with John Reed, credited for pushing the bank further into international markets, and Sanford I. Weill, the primary architect behind Citi's universal bank model. Says Don Callahan, Citi's new chief administrative officer: "You have to understand the history of the place to go forward."

Of course, Citigroup will need cash to do that. The bank has already raised $30 billion from outside investors to help shore up its balance sheet. Pandit says he can easily find more funds by getting rid of ancillary assets. For example, he's netted nearly $1 billion by cashing out some shares of the newly public Visa (V), trimming Citi's stake in Brazilian credit-card processor Redecard, and selling bank branches in the U.S. and abroad, among other moves. "Citi has collected a few more things than it should have," says Pandit.

Meanwhile, he plans to trim Citi's portfolio of home loans by $45 billion and offload some $12 billion worth of leveraged loans. The bank will likely do so at a loss, but the sales will free up capital. And despite mounting writedowns, money manager Robert A. Olstein figures Citi—the top holding in his $2.1 billion mutual fund—still can earn a decent profit over the next two rocky years given its diversified model.