Citigroup CEO faces grilling over failed plan, missed target

Thu Apr 10, 2014 4:55pm EDT
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By David Henry

(Reuters) - As Citigroup Inc (C.N: Quote) Chief Executive Mike Corbat prepares to talk to investors on Monday about the bank's biggest failure during his 18-month tenure, his biggest struggle may be with how little he knows about the reason he failed.

The U.S. Federal Reserve said on March 26 that it had rejected Citigroup's request to boost its dividend and buy back more shares. The news was a stinging blow to Corbat, who was charged with improving the bank's relationship with regulators in October 2012, when he was named the new CEO.

The Fed still had not explained as of earlier this week why Citigroup failed to win approval, a bank executive told Reuters. Corbat, he said, has little information as to what went wrong and why. Corbat, through a spokesman, declined to comment.

The regulator's rejection has wrecked what was left of Citigroup's chances of meeting a key profitability target that Corbat personally announced a year ago: 2015 profits equal to at least 10 percent of a measure of the bank's common equity. That ratio, known as "return on tangible common equity," is a measure of how effectively the bank uses shareholders' money to generate income.

Corbat is getting ready to talk to investors after the bank posts first quarter earnings on Monday. Even putting aside the bank's capital plan rejection, Citigroup's first-quarter results are not expected to be strong.

Net income is likely to be down 6 percent from a year earlier, according to the average analyst estimate. The reasons expected include a sharp drop in revenue from fixed-income markets and continued high legal and restructuring expenses. The bank has likely had to spend more money on legal and compliance matters after announcing it had found a $400 million loan fraud in Mexico.

Add it all up, and the bank's CEO has a lot of explaining to do, analysts said.

"All eyes are on Mike Corbat," said analyst Mike Mayo of   Continued...

Citigroup CEO Michael Corbat (C) chats with Thomson Reuters CEO Jim Smith and his wife Pam Kushmerick at the Thomson Reuters reception prior to the White House Correspondents' Association Gala, in Washington, April 27, 2013. REUTERS/Mike Theiler