Following the ouster of former Citigroup (NYSE: C) Chief Executive Vikram Pandit, speculators have run wild on what the future of the bank holds, and who will lead it. Preliminary indications are that Michael Corbat is stepping up to the plate continuing his long career with the firm, and that has been welcome by investors. Corbat’s plan is expected to focus on operating performance, upcoming stress tests, and the company’s relationship with regulators.
With the changing regulatory environment in the US and Europe, Corbat is likely to focus on emerging markets where many banks have turned their attention recently. The new CEO’s keen eye for process and increasing operating efficiency suggests that the bank will be losing some fat, particularly bad assets that remain in Citi Holdings. Citi Holdings, referred to as the ‘bad bank’ by many, continues to hold assets that the firm allegedly seeks to dispose of. Since Corbat took over, Moody’s revised the bank’s rating down to “negative” from “stable,” a move that has attracted a fair share of criticism. Corbat is known for sound risk management skills and will likely become less, not more risky under his leadership.
The Federal Reserve will come knocking with another round of stress tests in early 2013, as part of the infamous ‘CCAR’ process. The Fed stress scenarios are an important barometer for a bank’s health, and one that was an issue for Citi last year. Corbat — a traditional banker when compared to Pandit — is expected to improve the bank’s positioning with regulators, after the company failed the last round.
The company could also be looking to reclaim the number one spot as underwriter of corporate bond sales, a position it held for a decade before the financial crisis in 2008. Anthony Valeri, a market strategist at LPL Financial, told Bloomberg in a phone interview that Citigroup views “underwriting, particularly in an environment where yields are still dropping, as a lower risk and more profitable activity. It probably seems like an easier decision given the Fed’s support of the bond market the demand to refinance.” Over $3 trillion in corporate bonds have been issued this year on the backs of record low rates. Citibank moved from 9.9 percent in 2011 to 11.3 percent market share for investment-grad debt in 2012.
Corbat’s regime at Citi has been short thus far, but lively. Posessing a more traditional commercial banking background may make him a better equipped leader for one of the nation’s largest banks, though only time will tell his level of success.
