Vikram Pandit abruptly stepped down as CEO of Citigroup on Tuesday, surprising Wall Street, after steering the bank through the 2008 financial crisis and the choppy years that followed.
Pandit's replacement, effective immediately, is Michael Corbat, the current CEO of Citigroup's Europe, Middle East and Africa division, the bank said. Corbat has worked at Citi and its predecessors since he graduated from Harvard in 1983, it said.
Pandit will also relinquish his seat on Citi's board of directors. And a second top executive also resigned as part of the shake-up: President and Chief Operating Officer John Havens, who also served as CEO of Citi's Institutional Client Group.
The news shocked Wall Street, a day after the bank reported strong third-quarter earnings. Pandit is credited with slimming the bank by selling businesses, removing it from government ownership after a bailout in 2008 and righting its balance sheet after billions in losses on bad mortgage investments made before he took the helm.
Today, Citi is the country's third-largest bank, with $1.9 trillion in assets, according to the Federal Reserve. It trails only JPMorgan Chase, with $2.3 trillion, and Bank of America, with $2.1 trillion.
But Pandit's massive pay packages have raised the ire of investors. Some in government believed the bank was too slow to address its problems as they emerged in the months before the crisis caught fire in September 2008.
Citigroup offered no explanation for the sudden departure of its two top executives. On Monday, the bank announced earnings that beat analysts' expectations, after stripping out one-time items like a big write-down it had to take because it got less money than it had hoped when it negotiated to sell its stake in its retail brokerage.
'Now is the right time for someone else to take the helm at Citigroup' —Outgoing CEO VIkram Pandit
Investors were pleased with the results and sent the stock up more than 5 per cent Monday, rising $1.91 to close at $36.66.
"He's done pretty much all he can do to turn the bank around," said Daniel Alpert, managing partner at the New York investment bank Westwood Capital Partners LLC. He said it will be hard for big banks to boost their share prices because of intense pressure from regulators to simplify their businesses.
"There is some meaning to quit while you're ahead," Alpert said, noting that it's harder for executives to win massive pay packages when a company's stock is flat-lining.
In April, Citigroup shareholders rejected the bank's proposed pay deals for executives including Pandit. It was the first time shareholders dinged a Wall Street bank under a provision of the 2010 financial overhaul law that gives them a non-binding vote on executive pay.
Fifty-five per cent of the shareholders objected to deals including the $15 million that Pandit received last year, in addition to $10 million in retention pay. He had accepted a token $1 in compensation in 2010.
The retention pay was to vest in 2013, as an incentive for Pandit to stay on as CEO. A bank spokeswoman could not comment immediately on whether he would receive any of that money.
Bank still troubled
In March, Citigroup surprised observers by failing its stress test, the Federal Reserve's annual checkup for banks. The Fed said Citi, unlike any of its peers, did not have enough capital to raise its stock dividend and still withstand a financial crisis worse than 2008.
Pandit, 55, said in a statement Tuesday that "now is the right time for someone else to take the helm at Citigroup" after the bank "emerged from the financial crisis as a strong institution."
Pandit joined Citigroup in 2007 when the hedge fund he founded was acquired by the bank. He quickly rose to CEO in December 2007. Earlier, he had ascended to head of investment banking at Morgan Stanley before leaving in 2005 to form the hedge fund.
A native of India, Pandit attended Columbia University at 16 and completed a bachelor's degree in three years. He earned a doctorate in finance in 1986.
Pandit faced harsh criticism after Citigroup took $45 billion in government bailout money in the 2008 credit crisis. It is widely believed that other, stronger banks were forced to take billions in bailout money to divert attention from Citigroup, whose financial situation was more precarious.
The U.S. Treasury sold the last of its stake in the company in December 2010.
In October 2011 the company agreed to pay $285 million to settle civil fraud charges that it misled buyers of a complex mortgage investment just as the housing market was starting to collapse.
The Securities and Exchange Commission said Citigroup bet against the investment in 2007 and made $160 million in fees and profits. Investors lost millions.
Citigroup neither admitted nor denied the SEC's allegations in the settlement.
Goldman Sachs paid $550 million to settle similar charges and JPMorgan Chase & Co. paid $153.6 million. All the cases have involved complex investments called collateralized debt obligations. Those are securities that are backed by pools of other assets, such as mortgages.
In December 2011 Pandit announced the company would eliminate 4,500 jobs to cut costs. The cuts represented about 1.5 per cent of its global workforce of 267,000. When he was first hired in 2007, the company had 375,000 employees.
A naturalized citizen, Pandit lives in New York with his wife and two children.