Citigroup (click ticker for report: ) CEO Vikram Pandit and COO John Havens shockingly stepped down this morning after Citi reported decent third quarter results. Revenues and earnings were both strong, with earnings per share coming in several cents better than consensus estimates. The firm took a large write down on the sale of SmithBarney to Morgan Stanley (click ticker for report: ), but operations were relatively strong.
Citi, the “too big to fail” bank with arguably the most promising international business, experienced surging revenues and earnings in Latin America, which grew 8% and 30% year-over-year, respectively. This growth was driven by spectacular performance in Latin American Securities and Banking, which saw profitability surge 75% year-over-year on the back of strong increases in Mexico. US consumer banking was also strong, with net income increasing 18%, despite weaker revenue. Citi Holding’s assets also shrank over 31% to $171 billion as the firm continues to improve its balance sheet and rid it of toxic (nonperforming) assets. Tangible book value also grew 6% year-over-year to $52.70.
Since many investors considered this a strong quarter, we’re surprised by the timing of Pandit’s and Havens’ departures. The two were known to come as a package deal, but we’d expect the cohort to hang around and potentially renegotiate better compensation (Pandit’s salary was a token $1). This begs the question of whether the resignations were voluntary or forced, and also whether there will be some legal issues regarding Citi’s performance, or perhaps some pressure from large shareholders. Michael Corbat, formerly CEO of Europe, Middle East, and Africa operations at Citi, as well as Citi Holdings, will become CEO on a permanent basis. The EMEA segment has been a crucial segment of Citi’s business, so we think Corbat was a likely choice for CEO.
Ultimately, we still favor the Financial Services SPDR ETF (XLF) as the best diversified exposure to the financial sector. We’ll continue to follow developments at Citi and update our thoughts on the situation as more news becomes available.