Citi Shakes Up Top Ranks

(Updates final share price.)

Citigroup ( C) is shaking up its highest ranks, promoting an executive many believe is being groomed as an eventual successor to CEO Vikram Pandit.

The New York-based company said on Thursday that CFO Edward "Ned" Kelly, 56, will become vice chairman and take on broader responsibilities for strategy and M&A. Kelly will work closely with Pandit "to drive the execution of Citi's strategic and operational priorities," the company said.

John Gerspach, Citi's controller and chief accounting officer, will replace Kelly as CFO, it said.

Separately, former CFO Gary Crittenden is leaving the company. Crittenden, 56, resigned as chairman of Citi Holdings, the company's so-called "bad bank," to join Palo Alto, Calif., private equity firm Huntsman Gay Global Capital as a managing director, according to a separate release.

"I have been interested in private equity for many years and after a long career working with large public companies, the time is right to pursue this interest," Crittenden said. "Huntsman Gay presented me with the ideal opportunity to apply my experience with Fortune 500 companies to the middle market, where there are many compelling businesses we can help make significant improvements and become market leaders. I am very excited to enter this new phase of my professional life and join the outstanding team at Huntsman Gay."

Citi had originally said that Crittenden was relocating to Utah to devote more time to his family and other business interests.

Pandit said the changes "will further help in positioning our company for the future."

"Our relentless focus on executing against our strategic priorities at Citi continues as we remain focused on rationalizing Citi Holdings, and on Citicorp as our core operating business," Pandit said. "We are making consistent and substantial progress towards these goals."

Kelly's name has increasingly been popping up as a possible successor to Pandit as the bank continues to struggle. Former US Bancorp ( USB) chairman Jerry Grundhofer, who now sits on Citi's board, has also been named as a possible successor to Pandit.

" It seems like the company's new owner (the government) is clearly positioning to get rid of Pandit," says Cassandra Toroian, president and chief investment officer of Bell Rock Capital.

Toroian speculated that Pandit's lack of commercial banking skills and background and the Federal Deposit Insurance Corp.'s "desire to make sure those in the banking business have real skills in banking lead to the conclusion he'll be gone soon" -- possibly even before they announce second-quarter earnings on July 17, she writes in an email.

Kelly , who was promoted several times within Citi's investment banking ranks, replaced Crittenden as the company's CFO in March.

He was hired by Pandit in February 2008, after serving a brief stint at private equity firm The Carlyle Group. Kelly is the former CEO and chairman of Mercantile Bankshares, a small mid-Atlantic banking outfit, which was sold to PNC Financial Services ( PNC) in 2007. Kelly is also a former JPMorgan Chase ( JPM) executive.

Citi has been working to pare down its balance sheet and risk as it seeks to shore up capital and redirect the company into a more tailored global bank. Citi has received more than $45 billion from the federal government over several rounds since October and some $300 billion more in guarantees on risky assets. It is in the process of ceding a more than one-third ownership stake to the government by converting preferred shares for common stock.

Under pressure from regulators, the company split itself into a so-called good bank, Citicorp, and a so-called bad bank, Citi Holdings, by separating its core and non-core and troubled businesses early this year.

Still, as the bank continues to struggle from consumer loan losses and pressure from regulators about the pace of changes, Pandit has been increasingly under fire, particularly from FDIC Chairwoman Sheila Bair.

Two other management changes were announced Thursday. The company hired Eugene McQuade, formerly the president and COO of Freddie Mac ( FRE) and a former Merrill Lynch executive, to run Citibank, its retail franchise. McQuade is replacing Bill Rhodes, formerly the chairman and CEO of Citibank. Rhodes will continue as a senior vice chairman of the company.

Earlier this week the company made other management changes after the departure of Ajay Banga, the former head of Citi's Asia-Pacific operations. Banga took a position with MasterCard ( MA).

Those changes only bolster Kelly's chances of eventually taking Citi's top spot.

"I think Ned Kelly is probably as good a bet as any" to replace Pandit, says Carter Burgess, a managing director and head of the board recruiting practice at RSR Partners. "With all these other top people gone, who else is left?"

The company has posted six consecutive quarters of earnings losses. Analysts, on average, expect Citi to post a loss of 26 cents a share for the three months ending June 30. Citi reports second-quarter earnings on July 17.

Citi's stock, while up in the $7 range in early January, has hovered around $3 a share in recent months. The stock is down 83% from a year earlier.

Citi shares closed up 2.7% to $2.69.

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