Vikram Pandit abruptly stepped down as CEO of Citigroup on Tuesday, shocking Wall Street, after steering the bank through the 2008 financial crisis and the choppy years that followed.
Pandit's replacement, effective immediately, is Michael Corbat, who had been CEO of Citigroup's Europe, Middle East and Africa division, the bank said. Corbat has worked at Citi and its predecessors since he graduated from Harvard in 1983, it said.
Pandit will also relinquish his seat on Citi's board of directors. A second top executive also resigned as part of the shake-up: President and Chief Operating Officer John Havens, who also served as CEO of Citi's Institutional Client Group.
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The move followed a clash with the company's board over strategy and performance at businesses, including its institutional clients group, The Wall Street Journal reported.
Shareholders also have objected to Pandit's massive pay packages. He received $15 million in 2011.
The news came as a surprise, and Citigroup offered no explanation. There was no hint of the departure Monday, when the bank announced strong third-quarter earnings.
In an analyst call that lasted an hour and 40 minutes, and a shorter call with reporters, no one asked bank executives how long Pandit planned to stay, or whether there was a succession plan in place.
The strong quarter sent Citigroup's stock price to its highest level since early April.
Pandit's departure from the board is a clear indication that "this was a complete and unexpected break" between Pandit and Citi directors, said Chris Whalen, a bank analyst and senior managing director of Tangent Capital Partners in New York.
"This shows how dysfunctional this organization is, to have this event unfold this way," Whalen said. "They should have told us yesterday, unless they didn't know."
Still, Whalen said he does not expect the changes to mark a shift in strategic direction for the bank.
"They needed new leadership to put a face on it," he said.
Pandit is credited with slimming the bank by selling businesses, removing it from government ownership after a bailout in 2008 and righting its balance sheet after billions in losses on bad mortgage investments made before he took the helm.
Today, Citi is the country's third-largest bank, with $1.9 trillion in assets, according to the Federal Reserve. It trails only JPMorgan Chase, with $2.3 trillion, and Bank of America, with $2.1 trillion.
Pandit's massive pay packages have raised the ire of investors. And some in government believed the bank was too slow to address its problems as they emerged in the months before the crisis caught fire in September 2008.
In March 2009, as the crisis raged, President Barack Obama ordered the Treasury Department to consider breaking up Citigroup and removing its executives, according to a behind-the-scenes book about the crisis published last year by journalist Ron Suskind.
Treasury Secretary Timothy Geithner ignored Obama's request, according to Suskind's account. Geithner and the White House have disputed his version of events.
Pandit had another opponent in Sheila Bair, an influential bank regulator who ran the Federal Deposit Insurance Corp. during the crisis. Bair wanted the government to fire Pandit after it extended billions in bailouts and guarantees to his company. Geithner disagreed, and Pandit kept his job.
In an interview with CNBC Tuesday after Pandit's departure was announced, Bair said Citigroup has lacked "a clear strategic direction and focus" under his watch, and said shareholders are unhappy.
She said the bank would benefit from a CEO with commercial banking experience, as opposed to Pandit's background in investment banking, and that the move would be beneficial for shareholders.
In a book published last month, Bair said Pandit had been brought in by Robert Rubin, a former treasury secretary who became the bank's chairman, "to clean up the mess at Citi."
"I thought he had been a poor choice," Bair wrote, adding that he had been a hedge fund manager with a mixed record and had no experience as a commercial banker.
Daniel Alpert, managing partner at the New York investment bank Westwood Capital LLC, said Pandit had done "pretty much all he can do to turn the bank around."
He said it will be hard for big banks to boost their share prices because of intense pressure from regulators to simplify their businesses.
"There is some meaning to quit while you're ahead," Alpert said, noting that it's harder for executives to win massive pay packages when a company's stock is flat-lining.
In April, Citigroup shareholders rejected the bank's proposed pay deals for executives, including Pandit. It was the first time shareholders dinged a Wall Street bank under a provision of the 2010 financial overhaul law that gives them a non-binding vote on executive pay.
Fifty-five percent of the shareholders objected to deals including the $15 million that Pandit received last year, in addition to $10 million in retention pay. He had accepted a token $1 in compensation in 2010. In 2008, Pandit's compensation package was valued at $38.2 million.
Shareholders were frustrated in part because the stock had plunged 44 percent in 2011, after adjusting for a reverse stock split. So far in 2012, it has regained about half of its 2011 losses.
The retention pay was to vest in 2013, as an incentive for Pandit to stay on as CEO. A bank spokeswoman said he would not receive any of that money.
In March, Citigroup surprised observers by failing its stress test, the Federal Reserve's annual checkup for banks. The Fed said Citi, unlike any of its peers, did not have enough capital to raise its stock dividend and still withstand a financial crisis worse than 2008.
Pandit, 55, said in a statement Tuesday that "now is the right time for someone else to take the helm at Citigroup" after the bank "emerged from the financial crisis as a strong institution."
Both Pandit and Corbat sent memos to Citi's 262,000 employees early Tuesday. Pandit did not say why he was leaving, but gave the impression that he felt he had completed a mission.
"There is nothing better than our third quarter earnings announcement to demonstrate definitively that we have turned this company around," he wrote.
Corbat said he was humbled and excited, calling himself "a true believer in this company." He praised Pandit for leading Citi "back to its roots as a bank."
Corbat also noted the challenges ahead — "regulatory, legislative and economic changes around the world present headwinds as we redefine our relationships with all of our stakeholders."
Pandit suffered a bruising embarrassment as the financial crisis erupted in September 2008. His bank announced it would buy the bulk of Wachovia, which was teetering under the weight of exotic mortgage loans. Citi would get a fire-sale price and emerge as a rescuer, rather than a victim, from the crisis.
But four days later, Wells Fargo charged in with another offer, elbowing Citi out of the way and winning the approval of shareholders.
Citi survived the financial crisis, but its reputation was tattered. It was the only megabank, aside from Bank of America, to receive more than one round of taxpayer bailout money.
Pandit nursed the bank back to annual profitability in 2010. He has been slimming Citi down, selling off assets to make it more manageable and efficient, and to meet regulatory requirements. It's a sharp departure from his predecessors, empire-builders with a hunger for big-time acquisitions.
Still, Citigroup's recovery has been uneven. It received much less money than it had hoped for last month when it sold its share of the retail brokerage Morgan Stanley Smith Barney. Along with Bank of America, Citi is the only mega-bank still paying its shareholders only a token penny dividend each quarter.
Pandit joined Citigroup in 2007 when the hedge fund he founded was acquired by the bank. He quickly rose to CEO in December 2007. Earlier, he had ascended to head of investment banking at Morgan Stanley before leaving in 2005 to form the hedge fund.
A native of India, Pandit attended Columbia University at 16 and completed a bachelor's degree in three years. He earned a doctorate in finance in 1986.
Pandit faced harsh criticism after Citigroup took $45 billion in government bailout money in the 2008 credit crisis. It is widely believed that other, stronger banks were forced to take billions in bailout money to divert attention from Citigroup, whose financial situation was more precarious.
The U.S. Treasury sold the last of its stake in the company in December 2010.
In October 2011, the company agreed to pay $285 million to settle civil fraud charges that it misled buyers of a complex mortgage investment just as the housing market was starting to collapse.
The Securities and Exchange Commission said Citigroup bet against the investment in 2007 and made $160 million in fees and profits. Investors lost millions. Citigroup neither admitted nor denied the SEC's allegations.
In December 2011, Pandit announced the company would eliminate 4,500 jobs to cut costs. The cuts represented about 1.5 percent of its global workforce of 267,000. When he was first hired in 2007, the company had 375,000 employees.
A naturalized citizen, Pandit lives in New York with his wife and two children.
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