Increasingly, Pandit was acting out of character, barking profanities in the hallways. One former Citi executive says that the head of human resources expressed concern about Pandit’s expletive-laced outbursts he’d had in the C-suite. (Pandit denies any such outbursts.) The Wachovia incident, says one longtime friend, “was the first time I have ever seen him go nuts.”
Citi’s stock declined week after week. During a town-hall webcast meant to quell concern on November 17, Pandit forecast massive layoffs and felt the need to explain in his usual academic fashion what exactly a bank did (“A bank takes deposits and puts them to work”), which baffled the closed-circuit audience of veteran bankers. As Pandit flailed, the stock declined nearly 50 percent in four days, dipping below $5 a share, the trigger price at which pension funds would sell en masse and the bank would collapse completely. When Pandit took over, the stock had been at $52.
That Friday, November 21, reports surfaced that Pandit’s job was in the balance. According to a person familiar with the discussions, the name of former Time Warner chief Dick Parsons, a Citi board member and onetime head of Dime Savings Bank, was floated as a possible replacement. News of Pandit’s possible ouster furthered the stock’s fall. A team of Citi executives led by Ned Kelly, a seasoned negotiator who had been friends with Havens for many years, began talks with then–New York Federal Reserve chairman Tim Geithner’s team to ask for more money. Kelly’s first question to Geithner’s people was whether they wanted Pandit out. Federal officials reportedly concluded that the number of candidates willing and able to replace him was now next to zero.
Instead, federal officials encouraged Citi to start off-loading more properties and consider breaking up the company—even as the separate pieces were clearly worth less than they had been a year ago. The following Monday, Citi announced that it was receiving another bailout, this time $20 billion. (A month and a half later, Citi would merge Smith Barney with Morgan Stanley, giving Morgan a majority stake.)
Meanwhile, colleagues told Pandit he had a problem with morale at Citi, but he insisted his problems were bigger than that. “Pandit said, ‘I can give all the internal motivational speeches to the troops; it won’t matter if I don’t deliver,’ ” recounts the friend. “Rightly or wrongly, he was very dismissive of his traditional leader role, the ‘Hey, you’re a statesman’ role. The problem is much more serious, and fixing the problem will change everybody’s mind both inside and outside.”
How had Citigroup come to this? Blame began to circulate, with Rubin targeted as the alleged architect of the company’s high-risk investments. Before the spotlight could find him, Pandit, under pressure to defend Citigroup and give investors confidence that he was running the company, finally agreed to come out of hiding and appear on Charlie Rose. The performance was a slightly uncomfortable tap dance. The message: No one could have predicted this, no one is to blame, and there would be no further need for government bailouts. “We moved really fast,” Pandit told Rose. “What this market tells you is one should have moved even faster. And I keep thinking about it, is there something else I could have done sooner than what I did … But the most important thing, Charlie, is that it’s very, very important to look forward from where we are … We need to do a lot of hard work to figure out how to get from here to there.”
“And you are confident that we can get there?” asked Rose.
Pandit tried on his best inspirational-leader voice: “We, as a country, have no choice. We, at Citi, will get there.”
Last week, Citi was back before the government with its hat in its hands. After $45 billion in federal aid, the company was desperate for more. The negotiations went on for over a week—although the word negotiation might be overstating it. “You don’t negotiate with the government,” says a Citi executive involved in the talks. “It’s not like there’s a give and take.”
In the end, the Treasury Department agreed to convert up to $25 billion in preferred shares to common stock, shoring up Citi’s capital base. The deal is expected to give the government up to a 40 percent stake in the company—and influence within the board of directors. Pandit’s position, according to an internal memo to Citi staffers, is that this is “not a nationalization by any definition.” But while the Citi deal may not be nationalization in the strictest sense, it is a stunning turn of events for the U.S. government to own nearly half of one of the world’s largest banks. What that means in terms of the operations of Citi is anyone’s guess at this point. Federal officials seem reluctant to issue directives to Pandit, hoping to avoid the appearance of a true government takeover of the company. On the other hand, the consensus among Citi’s newest shareholders is that the “supermarket” model is untenable and the company needs to be broken up into smaller, more manageable entities. It’s a move Pandit has resisted from the beginning.