Pandit’s problems with Krawcheck—onetime CEO candidate and, incidentally, the top female executive at Citigroup—came to a head over how to handle Smith Barney, the brokerage arm of the company. There was a major fire to put out. Clients were suffering extraordinary losses on Citi’s alternative investments and so-called auction-rate securities, causing brokers to exit Citi in big numbers. E-mails from Smith Barney staffers poured in expressing dismay that Pandit wouldn’t reimburse clients who had lost money under Citi’s management. By this time, Krawcheck was already considered a thorn in Pandit’s side for continually arguing that the risk to clients had been higher than advertised and giving back a portion of the proceeds would protect the franchise. She was met with resistance from Pandit’s team: Havens was against reimbursing and yelled about it in a telephone conference. But the board sided with Krawcheck, asking that Citi take action with clients.
By September, Havens told Krawcheck that two major components of her division, research and the private bank, would now be under Havens’s management in the banking division, ostensibly part of overall restructuring. Krawcheck felt they were stripping her of power and essentially forcing her out. She announced her departure in September, leaving the company without an exit package.
During all this, Sandy Weill, who had originally hired Krawcheck, was breathing down Pandit’s neck. Concerned about the company’s stock price, Weill personally asked Pandit to buy back shares along with him, in a show of public confidence. Pandit agreed, according to a person close to Weill. But when Weill started buying back stock and Pandit didn’t do it right away, Weill complained loudly to friends. Pandit stopped returning Weill’s calls altogether, referring him to Callahan. (According to two people close to the situation, Pandit and Weill have spoken exactly twice since Pandit took over Citigroup; Pandit has since bought $8.4 million in Citi shares, although at a lower price than Weill did.)
Even within the ranks of his own lieutenants, there was infighting. Old Lane Partners was on the skids, and Ramakrishnan rushed to Pandit to secure a large capital infusion to keep it from going under. Pandit promised him $2 billion. When Havens found out about Pandit’s promise, he was furious, demanding to know how Pandit could have done such a thing without consulting him. Caught between two old friends, Pandit listened to Havens, as he usually did in the end. The Wall Street Journal published a story about the end of Old Lane, featuring Pandit’s stippled headshot and calling the event a “blow to CEO.” Feeling betrayed, Ramakrishnan threatened to sue Pandit for a better exit deal. The men reportedly no longer speak. “I think Vikram is more upset about it than Guru,” says a mutual acquaintance. “He’s disappointed in Guru.”
In September, the markets plunged along with the collapsing credit markets, and the foundation of Citigroup began to crumble. While Pandit had managed to accrue $60 billion in capital to shore up finances, it wasn’t near enough. Pandit was smart enough to know what needed to be done: He had to secure more access to cash, lots of it. As banks began to fail, he bid $1 a share for the commercial bank Wachovia, which the government was hoping to quickly marry off and save from dissolution. It was a cheap way to get access to cash deposits that could shore up Citi’s credit problems. As a deal drew near a close, Pandit appeared confident that he had achieved a much-needed victory.
Perhaps a little too confident. Pandit and Citi had relied on what amounted to the legal version of a handshake to secure the deal with Wachovia. And they dragged out the process while trying to separate Wachovia’s wealth-management division from the rest of the company, feeling it had too much overlap with Smith Barney. (Lew Kaden told a private group, “We’ve got 15,000 complainers, we don’t need 15,000 more.”) Pandit left just enough room for Wells Fargo to swoop in with a bid for $7 a share and snatch the bank out from under Citi.
Pandit was beyond infuriated. After learning of the coup during a middle-of-the night phone call, he angrily demanded to senior executives at Citi that they pull Wells Fargo’s credit lines. “Pull their fucking lines!” he screamed. “Pull their fucking lines!” A senior executive in the room calmly explained that Citigroup had no business with Wells Fargo. There was nothing they could do. Ultimately, Citi filed a lawsuit against Wells Fargo for breaching what Citi considered an exclusive deal.
What no one had realized at the time was that this was effectively Pandit’s last stand before the markets would lay all previously made plans to waste. The failed bid for Wachovia was a major blow to investor confidence, and Citi’s stock tumbled as the markets buckled and Lehman Brothers folded. Within a week, Pandit was lined up with the other banking CEOs to meet with then–Treasury Secretary Hank Paulson. With the government fearing massive bank failures and a wider financial meltdown, Citi accepted $25 billion in federal bailout money in exchange for issues of preferred Citi stock.