Pandit front runner for Citigroup's top job

Vikram Pandit may soon take on his toughest puzzle since graduate-school professors assigned him an asset-pricing problem even they couldn't solve. He has emerged as the leading internal candidate for chief executive officer of Citigroup, according to a person familiar with the search.

The only other inside candidate under serious consideration is Chief Financial Officer Gary Crittenden, said the person, who wasn't authorized to speak for the search committee. New York- based Citi's board wants to name a new CEO before employees leave for the holidays, another individual said.

The new chief will fill a vacancy left by the Nov. 4 departure of Charles O "Chuck'' Prince III, after the largest US bank reported its first loss in 17 years. Barely four weeks earlier, Prince had put Pandit in charge of the Citi division responsible for subprime mortgages and related bonds, which lost at least $9 billion of value. The challenge makes his grad-school assignment look like high-school algebra.

"You wouldn't give this problem to just anyone,'' says Rajnish Mehra, a disciple of the Nobel Prize winner Edward Prescott who served on Pandit's dissertation committee at Columbia University in the 1970s. "It's what you assign to brilliant students. He didn't fully solve it, to be honest, but he made a lot of progress.''

The Indian-born Pandit, 50, who earned a Ph.D. in finance at Columbia, declined to comment for this story, as did Citigroup spokeswoman Christina Pretto.

Wall Street Firings
Citi is looking for a new CEO against a backdrop of bloodletting on Wall Street, following more than $50 billion of losses and writedowns on subprime mortgage investments and high- yield corporate loans. Merrill Lynch & Co, UBS and E*Trade Financial Corp have shown their CEOs the door, while Morgan Stanley and Bear Stearns Cos. sacked No. 2-ranked executives.

Robert Rubin, the former U.S. Treasury secretary who joined Citigroup in 1999 as head of the executive committee, stepped in as chairman, and Win Bischoff, the bank's most senior European executive, took over as acting CEO. Board member Richard Parsons, who's retiring at the end of the year as Time Warner Inc. CEO, is leading the search for Prince's replacement, considering internal and external candidates.

The list of outside contenders shrank after NYSE Euronext CEO John Thain agreed to take the top job at New York-based Merrill. Remaining external candidates may include Barclays Plc President Bob Diamond and American International Group Inc. Chairman Robert Willumstad, who was Citi president until he stepped down in 2005. The New York Times reported Dec. 1 that Richard Kovacevich, who stepped down earlier this year as chief of Wells Fargo & Co., also is believed to be under consideration.

Too Big a Job
Citigroup's stock tumbled more than 40 percent this year, wiping out $108 billion of market value. Credit agencies are threatening to cut Citigroup's AA rating. Last week the bank had to sell $7.5 billion of preferred stock to the ruling family of Abu Dhabi to shore up capital. CIBC World Markets analyst Meredith Whitney says Citigroup may have to cut the dividend.

The whole Citi package may be too big for any one person to manage, says Smith Asset Management's William Smith. Citigroup has more than 300,000 employees, offices in more than 100 countries and $2 trillion of assets. The company also encompasses consumer bank branches and the Smith Barney brokerage network "� businesses in which Pandit has no experience.

"You're going to have to have a really smart, politically astute executive who's able to traverse the Gordian knot of the supermarket business model,'' said Michael Holland, chairman of Holland & Co in New York, which manages about $4 billion and doesn't own any Citigroup shares.

Hedge Fund Buyout
Pandit joined Citi only last July when Prince bought out his year-old hedge fund for $800 million. Before that, Pandit was at Morgan Stanley for 22 years.

"Vikram's one of the smarter, more insightful guys I've met in the business and certainly has the intellectual capability to try to get his arms around the issues,'' said Adam Compton, an analyst who helps oversee $150 billion at RCM Capital Management in San Francisco, including 2 million Citigroup shares at the end of September.

Pandit, whose surname means ``learned'' in Sanskrit and is the origin of the English word ``pundit,'' is known among former colleagues for brooding over decisions. He lacks the charisma of former CEO Sanford ``Sandy'' Weill, who built Citigroup by merging bank, brokerage and insurance businesses over 17 years and tripled the stock price during his last five years.

"Working the room does not come naturally for him,'' said Barton Biggs, who was chief global strategist at Morgan Stanley under Pandit before leaving in 2003 to start hedge fund Traxis Partners.

Fixing Trading Division
In his current job as Citi's head of trading, investment- banking and hedge funds, Pandit hasn't waited for marching orders. He named a handful of top deputies on Nov. 2 to help with recruiting, setting strategy and finding ways ``to take out unproductive costs,'' according to a memo he issued.

His goal, according to the memo, ``is that no CEO, no major investor, no government will undertake a major transaction in the financial markets without first coming to Citi.''

A few days later, he formed a ``Subprime Portfolio Group'' to manage the bank's $43 billion in subprime assets. On Nov. 13, Citigroup combined its stock and bond sales departments, to reduce the number of reps calling on corporate treasurers and institutional investors.

Pandit may not have enough time to prove himself, said Jordan Posner, who helps oversee about $1.8 billion as a senior portfolio manager at Matrix Asset Advisors, including about 1.2 million Citigroup shares.

On Rubin's Radar
"If success in this job is a prerequisite for him being CEO of the larger Citi, then the timing's just not going to work,'' Posner said.

Rubin became aware of Pandit at a private meeting of Wall Street executives in late 1999 at the Century Association, a 161- year-old private club in Manhattan. The meeting was hosted by then-Securities and Exchange Commission Chairman Arthur Levitt, who wanted ideas on changes needed for U.S. stock markets. Pandit was so articulate that Rubin asked the person next to him who Pandit was, according to an attendee. Rubin declined to comment on Pandit.

Vikram Shankar Pandit was born in Nagpur, India, a city of 2.5 million. His father, a businessman who set up and managed pharmaceutical ventures for E.R. Squibb & Sons, regaled him with tales of traveling in the U.S. In 1973 at age 16, Pandit came to New York City and enrolled in Columbia University.

Tony Randall's Place
Four years later, he had bachelor's and master's degrees in electrical engineering. It would take almost a decade more, much of it hunched over a desk in a fourth-floor carrel in the university's Uris Hall, to complete his Ph.D. dissertation. He penned more than 80 pages of mathematical analysis, replete with quadratic and differential equations.

"If I ever opened my door, he was working out there,'' recalls Mehra, who is now a finance professor at the University of California, Santa Barbara.

Pandit paid $17.9 million earlier this year for a 10-room apartment overlooking New York's Central Park that was once owned by the late actor Tony Randall, according to public records. He was named to the Columbia board of trustees in 2003.

At Morgan Stanley, Pandit gets credit for building electronic-trading systems that cut transaction costs 50 percent from 2002 to 2004. He also put Morgan Stanley into the sweet spot of the $1.8 trillion hedge-fund industry by becoming the world's biggest prime broker, a business that consists of lending funds money and securities and handling their trades.

"Vikram predicted that the cost of executing a trade was going to zero and needed to go to zero,'' said Terry Meguid, who ran investment banking at Morgan Stanley before quitting in April 2005 and helping to found Perella Weinberg Partners. Pandit's investments in technology ``made that business infinitely more efficient and maintained its profitability.''