From Financial Times
By Camilla Hall
April 1, 2014
John Reed, the former co-chief executive and architect of the modern day Citigroup, said “managerial turmoil” at the sprawling global bank had hindered its ability to secure the Federal Reserve’s approval for its 2014 capital plans.
“Having three or four CEOs in the last decade hasn’t helped,” Mr. Reed told a conference [sponsored by Boston University’s Center for Finance, Law & Policy] in Boston on Monday.
The bank has been “unable to create what the Fed is looking for and when you’re talking about an institution that is large in size, diverse in activities, and has gone through a certain amount of managerial turmoil, you can well imagine that it was very difficult for them to respond to the request that they got,” Mr. Reed said.
Citi declined to comment.
Citi has been in the spotlight after it was the only major US bank to have its capital plan for higher share buybacks and dividends blocked by the Federal Reserve on March 26. The bank’s previous chief executive, Vikram Pandit, was ousted after Citi first failed the Fed’s stress tests two years ago.
The Fed objected to Citi’s 2014 plans on a “qualitative” basis despite the bank passing the necessary “quantitative” requirements on capital and leverage ratios. Three non-US bank units failed on the same count while Utah-based Zions Bancorp also had its plan rejected after missing the minimum capital requirement.
In Citi’s case, the Fed cited “inadequate” improvement in areas previously flagged and found fault with the bank’s ability to estimate revenue and loss projections under a stress scenario for “material parts of the firm’s global operations”.
The failure has raised questions about Citi’s ability to oversee its complex international reach and came as a serious blow after efforts by chief executive Mike Corbat to rebuild the bank’s image and improve internal controls.
“Even if you know exactly what you want to do, to make sure it happens throughout the organization is an amazingly difficult task,” Mr. Reed said.
The Fed’s objection followed the bank’s announcement in March that it and the US unit of its Mexican business, Banamex, had received subpoenas from US regulators over compliance with the Bank Secrecy Act and anti-money laundering controls. Banamex had already been in the headlines after Citi said it had found an alleged fraud at the unit, sparking concerns over its global governance.
Citi had planned a $6.4bn buyback programme by the first quarter of 2015 and intended to increase its quarterly dividend from 1 cent to 5 cents. Investors are waiting to see how the bank responds to the Fed.
This year’s objection has sparked criticism from within the bank itself as well as frustration from shareholders who were not expecting the news.
Mr. Reed, who has called for the reintroduction of Glass Steagall – the act that split deposit-taking institutions from riskier banking activities – said “the industry would be better structured if we took managerial issues into account and separated those who primarily intermediate capital markets from those that are traditional banks”.
As chief executive of Citicorp in the 1980s and 1990s, Mr. Reed worked to create a “one-stop shop” selling many different products and took the bank into its historic merger with Travelers Group to form Citigroup in 1998.
Read more: ft.com