New Leaders of Financial Giants: The Cases of Vikram Pandit (Citi) and John Thain (Merrill Lynch)

Abstract

In January 2008, Citi and Merrill Lynch are trying to steer their ships back to calm waters. The new CEOs, Vikram Pandit (Citi) and John Thain (Merrill), have been at the helm of their companies for less than three months. This case focuses on their steps to counteract the massive losses resulting from their firms' investments in subprime-mortgage structures. What actions have these leaders taken thus far and what actions should they consider going forward? See also “Warren E. Buffett, 2008” (UVA-F-1550).

Excerpt

UVA-F-1551

Rev. Feb. 10, 2011

NEW LEADERS OF FINANCIAL GIANTS:

THE CASES OF VIKRAM PANDIT (CITI) AND JOHN THAIN (MERRILL LYNCH)

Vikram Pandit's first earnings call as the new CEO of Citi took place on the morning of January 15, 2008. He had been at the helm of Citi for a little over five weeks and had to pore over a great deal of financial data to prepare for the event. The last few earnings calls had been quite demanding for his predecessor, Chuck Prince. In the midst of the so-called subprime crisis that had entangled Citi, Pandit had been brought in to take action and lead the financial powerhouse back to profitability. There was much to be done in a very short time, and Pandit's first earnings call with the analysts would be critical in determining how well he had managed the damage that Citi had sustained over the past few months. What actions had Pandit taken, and what actions would he be taking to steer Citi back to profitability? What were his priorities?

Citi had just announced a cut in its quarterly dividend, from 54 cents to 32 cents a share (a 41% reduction). A few months earlier, it had received a major capital infusion of $ 7.5 billion from Abu Dhabi's state investment fund. Investors from Kuwait, Singapore, and New Jersey had also contributed capital, bringing the total raised to $ 12.5 billion. Another round of job cuts was expected, though none had been announced. These efforts were intended to offset a huge write-down of $ 18.1 billion that Citi had to take because of its exposure to subprime mortgages.

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Keywords: risk management, subprime crisis, banking, sovereign funds