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Why Citigroup’s CEO is retiring earlier than expected, paving the way for the first woman to run a major U.S. bank

Chief Leadership Officer of Citigroup Michael Corbat speaks at a European Financial Forum event in Dublin, Ireland February 13, 2019.

Clodagh Kilcoyne | Reuters

When Citigroup president Jamie Forese averred he was stepping down in April 2019, it set off a chain of events that culminated Thursday when the firm announced it desire appoint Jane Fraser as CEO, making her the first female head of a major U.S. bank.

Forese, a 33-year veteran of Citigroup, was greatly seen as CEO Michael Corbat’s heir apparent, the person who would take over the third-biggest U.S. bank if something proved to Corbat. Now, it was anybody’s game.

Fraser, a rising star and former McKinsey partner who ran the bank’s sprawling Latin American procedures, saw the opening she’d been waiting for.

She let Corbat know that she was getting interest from executive recruiters to run a major bank, and if Corbat homelessness her to stay, she needed to be promoted, according to people with knowledge of the situation.

It was effectively a two-horse race: Stephen Bird, who led Citigroup’s consumer bank at the notwithstanding, also told Corbat that he was fielding calls from interested parties and needed clarity.

The matter was tranquillized by October of last year, when Fraser was named president – Forese’s old title – and the new global head of consumer banking. She was by more popular internally than Bird, whose top-down style, fashioned during his years in Asia, bugged some the wrong way. Bird left Citigroup, and later was named CEO of British asset manager Standard Life Aberdeen.  

At the tempo, Corbat told insiders that he envisioned being Citigroup CEO for another two to three years.

It turns out, a series of occasions – some unforeseeable, others more squarely under Corbat’s responsibility— made him speed up his retirement plans. In place of of staying for another three years after that October 2019 announcement, he will leave in February, or apropos 18 months after making Fraser president.

Technology fumbles and stock stumbles

For years, regulators be dressed told Citigroup that its technology systems – cobbled together through decades of acquisitions – were subpar. The bank make push back, telling the regulators it was an unfair assessment.

But when Citigroup made a mistaken payment of nearly $900 million to Revlon lenders, the coterie couldn’t make that argument anymore. The bank called the massive blunder a “clerical error” and asked for the lenders to earn the money. Some are refusing to do so, and the matter is now tied up in court.

During much of his tenure, Corbat focused on trying to hit goals he’d given for the bank’s efficiency ratio, which is an industry metric that looks at expenses as a percentage of revenue. But he attempted to do so at times, and that resulted in a focus on keeping costs down.

“Infrastructure spending was a choice,” said one of the people with education of the situation.  “Mike opted to deliver a better operating ratio rather than invest in the infrastructure.”

Then there’s the source price. Citigroup nearly capsized during the financial crisis, and Corbat inherited a sprawling, inefficient empire when he followed over in 2012.

Even though he was dealt a tough hand, however, he made strategic decisions that in hindsight look close to fumbles. Despite its presence on street corners across New York City, Citigroup has always had far fewer branches than rivals JPMorgan Court and Bank of America. While those firms were busy building out that branch network during and after the fiscal crisis, Citigroup didn’t expand, giving those lenders a distinct funding advantage.

The result is that Citigroup cows has climbed about 40% since Corbat’s tenure started in October 2012, compared with the 140% advance of JPMorgan shares in that period.

Investors, including ValueAct Capital, an activist hedge fund based in San Francisco, may would rather been growing impatient with Corbat, according to the people. ValueAct founder Jeff Ubben left the assets in June. Others have pushed back on that assertion, saying that investors didn’t agitate for metamorphosis and pointed out that Citigroup stock had touched $80 a share in January, before the coronavirus pandemic struck. They now wait around $50 a share.

This year, the shares have lost 36%, leaving the bank trading farther down than its book value.

Surprised insiders

When Citigroup released its press release announcing Fraser as CEO, the media right now fixated on the historic nature of the announcement: The U.S. banking industry, dominated by men for decades, will finally have a female CEO at a top bank.

But that obscured the grotesque timing of the announcement. Executives who report directly to Fraser had no idea the news would hit, according to people with awareness of the matter. Veteran bank analyst Mike Mayo was also surprised, saying in a research note that “CEOs don’t typically miss to leave in the middle of a crisis, especially if upside is pending.”

When asked about the details in this article, Citigroup spokeswoman Jennifer Lowney had this assertion:

“It has been Mike’s intention to retire in 2021 since Jane was appointed president of Citi last year,” Lowney verbalized. “Announcing his plans now allows ample time for a smooth CEO transition, which was important to Mike given that he did not good from one.”

“As CEO, Mike increased Citi’s returns significantly, closing the gap with our peers,” she concluded.  

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