Citigroup Chief Executive Officer Michael Corbat speaks at a European Financial Forum event in Dublin, Ireland on February 13, 2019.
Clodagh Kilcoyne | Reuters
When Citigroup President Jamie Forese announced that he would be stepping down in April 2019, it sparked a series of events that culminated on Thursday when the company announced it would appoint Jane Fraser as CEO, which makes her the first female CEO of a major US bank.
Forese, a 33-year Citigroup veteran, was widely regarded as the heir to CEO Michael Corbat, who would take over the third largest U.S. bank if anything happened to Corbat. Now it was everyone's game.
Fraser, a rising star and former McKinsey partner who ran the bank's sprawling Latin American operations, saw the opening she had been waiting for.
She let Corbat know that she was getting interest from recruiters to run a large bank, and if Corbat wanted her to stay she would have to be promoted from people with knowledge of the situation, according to reports.
It was practically a two-horse race: Stephen Bird, who ran Citigroup's consumer bank at the time, also told Corbat that he was taking calls from prospects and needed clarity.
The matter was resolved last October when Fraser was named president – Forese's old title – and the new global head of consumer banking. She was generally more popular internally than Bird, whose top-down style, designed during his years in Asia, rubbed a little wrong. Bird left Citigroup and was later appointed CEO of UK wealth manager Standard Life Aberdeen.
At the time, Corbat told insiders that he was planning to become CEO of Citigroup for two to three years.
It turned out that a number of events – some unpredictable, others more under Corbat's responsibility – prompted him to speed up his retirement savings. Instead of staying three years after that October 2019 announcement, he will be leaving in February, or about 18 months after Fraser was named president.
Technology fumbles and stocks stumbles
For years, regulators have told Citigroup that their technology systems, cobbled together through decades of acquisitions, were below average. The bank would push back and tell regulators that it was an unfair assessment.
However, when Citigroup made a false payment of nearly $ 900 million to Revlon's lenders, the company could no longer make that argument. The bank called the massive mistake a "typo" and asked the lenders to return the money. Some refuse to do so and the matter is now before the court.
For much of his tenure, Corbat focused on meeting the goals he had stated for the bank's efficiency rate. This is a banking metric where expenses are viewed as a percentage of income. But he struggled to do this at times and that led him to focus on keeping costs down.
"Infrastructure spending was a choice," said one of the knowledgeable people. "Mike chose a better operating rate than investing in infrastructure."
Then there is the share price. Citigroup nearly capsized during the financial crisis, and Corbat inherited a sprawling, inefficient empire when it took over in 2012.
Although given a hard hand, he made strategic decisions that, in retrospect, look like fiddling. Despite its presence on New York City street corners, Citigroup has always had far fewer branches than rivals JPMorgan Chase and Bank of America. While these competitors were busy building this network during and after the financial crisis, Citigroup did not expand and gave these lenders a significant funding advantage.
The upshot is that Citigroup stock has risen roughly 40% since Corbat's tenure began in October 2012, compared to JPMorgan stock's 140% increase over that period.
Investors, including ValueAct Capital, a San Francisco-based activist hedge fund, may have grown impatient with Corbat, according to the public. ValueAct founder Jeff Ubben left the fund in June. Others have pushed that claim back, stating that investors were not pushing for change, pointing out that Citigroup stock hit $ 80 per share in January before the coronavirus pandemic broke out. They're hovering around $ 50 a share now.
This year the shares are down 36% and the bank is trading below book value.
When Citigroup published its press release announcing Fraser as CEO, the press immediately focused on the historic nature of the announcement: The US banking industry, which has been dominated by men for decades, will finally have a female CEO at a top bank.
But that masked the strange timing of the announcement. Executives reporting directly to Fraser had no idea that the news would come according to people with knowledge of the matter. Seasoned bank analyst Mike Mayo was also surprised, saying in a research report: "CEOs don't usually want to leave in the middle of a crisis, especially when an uptrend is imminent."
When asked about the details of this article, Citigroup spokeswoman Jennifer Lowney had the following statement:
"Mike's intention has been to retire in 2021 since Jane was named president of Citi last year," said Lowney. "With the announcement of his plans, there is now plenty of time for a smooth CEO change, which was important to Mike as he did not benefit from one."
"As CEO, Mike has significantly increased Citi's ROI, bridging the gap with our peers," she added.