Citigroup Restructures After Dim Forecast

NEW YORK (Oct. 12) - Citigroup Inc, which last week forecast 60 percent declines in third-quarter earnings amid bad debt losses, said it was promoting Vikram Pandit to head banking, markets, and alternative investments, and that trading head Thomas Maheras was leaving.

Randy Barker, one of Citi's three heads of fixed income, will also leave the company, Citi Chief Executive Charles Prince said in an interview. Citi said last week that it expects $3.3 billion of losses and write downs from its securities and banking areas.

Maheras' departure leaves Citi with one less senior manager to potentially fill the chief executive spot if Prince leaves. Citi's warning last week left some investors calling for Prince's ouster.

The changed structure may not fix much at all, said Thomas Russo, partner and portfolio manager at Gardner Russo & Gardner in Lancaster, Pennsylvania, which owns Citi shares.

"Clearing the bench may be therapeutic, but it doesn't necessarily improve Citi's ability to fix the mistakes that were made or seize opportunities in these markets," Russo said.

Citi's shares had risen 2.5 percent on Thursday before the management change was announced, to close at $48.32 on the New York Stock Exchange. The rise came amid rumors that Prince was leaving the bank, said Peter Kovalski, portfolio manager at Alpine Woods Capital Investors, which owns Citi shares.

Shares of Citi, the largest bank in the U.S., have still fallen more than 13 percent so far this year, performing worse than the Philadelphia KBW Bank index's 7.45 percent decline.

Michael Klein will continue to be a co-head of capital markets and banking, reporting to Pandit, who was previously head of Citi Alternative Investments. Jamie Forese, head of global equities for Citi, was promoted to co-head capital markets and banking with Klein. Forese also reports to Pandit.

Klein will continue to focus on banking, while Forese will focus on trading.

Citi is one of a string of banks to take big writedowns on mortgages and other loans after the subprime mortgage crisis widened to other markets over the summer. Merrill Lynch & Co, Deutsche Bank, UBS, Washington Mutual, and Sovereign Bancorp all said last week they were writing down assets.

Two senior executives at Merrill Lynch, global fixed income head Osman Semerci and structured credit executive Dale Lattanzio, left Merrill in a move widely seen as a house-cleaning. UBS said that investment bank head Huw Jenkins and group chief financial officer Clive Standish were leaving.

Citi's Chief Financial Officer, Gary Crittenden, said last week that the bank's performance was below expectations even accounting for market conditions.

In addition to the pre-tax write downs and losses in securities and banking of $3.3 billion, Citi said it expects $2.6 billion of higher credit costs in consumer banking.

Citigroup is due to report third-quarter results on October 15.

PANDIT RISES

Citigroup agreed in April to buy Old Lane Partners LP, a hedge fund company co-founded by former Morgan Stanley executive Pandit. Pandit became chief executive of Citi Alternative Investments.

Pandit, 50, will now be chairman and chief executive of the new Institutional Clients Group, which includes the banking, markets, and alternative investments businesses.

When pressed about the timing for setting up the new group, Citi's Prince, 57, said "My job is to look ahead and see where we can best utilize our team, and I think our combination of people on the team is a stronger lineup than we've had in the past."

Pandit said in an interview that bringing together multiple products that appeal to the same group of clients can accelerate growth.

Pandit left Morgan Stanley in 2005, as managers at that bank became increasingly frustrated with then-chief executive Philip Purcell.

John Havens, also formerly of Morgan Stanley, was named president and chief executive of Citi Alternative Investments, reporting to Pandit.

Geoffrey Coley, another head of fixed income, will take other responsibilities, Prince said. Paco Ybarra, also a head of fixed income, will continue in his current role.

Reporting by Dan Wilchins