Citigroup Bears Score Win With Parsons' Exit

NEW YORK ( TheStreet) -- Citigroup ( C) Chairman Richard D. Parsons will step down after 16 years on the company's board, the bank confirmed in a late Friday statement.

That decision comes just a over a week after CLSA bank analyst Mike Mayo called for Parson's ouster and a revamp of the bank's corporate governance.

For longtime Citi bear Mayo and others, the move may represent further progress for the bank as it moves on from the financial crisis.

"I think that Parsons should leave in the next two weeks," said Mayo at a February conference in front of Wall Street executives and hedge fund managers. In a separate Feb. 23 research note, Mayo called for a series of changes at Citi, starting with a replacement of Parsons as a necessary first step to "help better evolve Citi's culture, controls, conduct, costs, conservatism, and communication."

Citigroup will elect current board director Michael E. O'Neill as chairman at the company's April 17 annual meeting, with Parsons staying on until then, according to the press release. Previously, O'Neill was chief executive of Bank of Hawaii ( BOH).

Like Parsons, Citigroup directors Alain J.P. Belda and Timothy C. Collins also won't seek re-election to the company's board.

"Citi still faces a challenging environment, as do all the large banks, but the crisis is behind us. Given the strong position that Citi is in today, I have concluded that the time has come for me to take my leave," said Parsons in a statement. "In Mike O'Neill, the Board will have the perfect leader to enable it to continue providing the oversight and guidance America's global bank deserves."

CLSA highlighted O'Neill as a possible replacement for Parsons, in addition to ex-Bank of New York CEO, Robert Kelly and ex Wells Fargo CEO Dick Kovacevich - signaling that an announcement would represent a positive change for Citigroup. Prior to joining Citigroup as a director in 2009, O'Neill was credited for turning around Bank of Hawaii.

Parsons has been chairman of Citigroup since 2009, overseeing the bank's post-crisis restructuring, which has focused on asset sales from its CitiHoldings unit as a way to repay government bailout funds, raise capital and target international growth prospects, in an effort that bodes well for a 2012 dividend boost.

In his resignation statement, Parsons noted the overhaul of Citigroup's board since the financial crisis. "New members now make up the majority of the Board, including some of the most talented and experienced leaders in the financial industry," said Parsons.

Critics like Mayo argued that Parsons wasn't the correct choice as chairman because of his long tenure at the bank prior to its near collapse. Mayo also believes Citigroup should address accounting policies that are too aggressive and change its auditor, KPMG, which has been with the firm since 1969.

It took a $45 billion taxpayer funded bailout in 2008 for Citigroup to survive the financial crisis. However, efforts by current chief executive Vikram Pandit and management to sell hundreds of billions in non-core assets may have turned Citigroup's prospects. Many analysts point out that a leaner Citigroup is now poised to capitalize on growth in emerging markets more than its U.S. megabank peers, as its continues to grow internationally.

Citigroup shares are up nearly 30% in 2011, after falling more than 40% in 2011. Nevertheless, the bank's shares are off over 25% in the last 12 months, even after a 2012 financial sector rally. Citigroup shares closed at $34.10 in Friday trading, down slightly on the day.

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Mayo has an underperform rating on the stock with a price target of $32.36. Not all analysts are bearish on the bank. On Monday, Credit Suisse just added the stock to its focus list, while other firms like Sandler O'Neill highlight the bank as a top large cap bank pick for 2012. After its fourth quarter earnings release, many analysts argued that Citigroup may be brighter than you think.

In his report, Mayo said his rationale for pushing for Parsons' ouster was tied to his long history at Citigroup. Parsons was chairman of Citigroup's compensation committee from 2002 to 2007 when then CEO Charles Prince and Chairman Robert Rubin earned $180 million leading up to the financial crisis, Mayo said.

For more on bank pay, see why clawbacks will leave minor scratches on Wall Street. See the below video for more on Mayo, his interpretation of the Volcker Rule and Oscar nominated Wall Street thriller Margin Call.

In January fourth quarter earnings, Citigroup reported earnings per share of 38 cents, missing a 50 cent a share estimate. While Citigroup's quarterly earnings missed estimates, the numbers still helped propel the bank to an $11.3 billion 2011 profit, its best year since 2006.

The Wall Street Journal report indicated that Parsons' retirement could be for personal reasons, as the bank solidifies its post-crisis strategy and profitability. Parsons told the board on Friday that he was leaving Citigroup to focus on other endeavors like an Italian vineyard called Il Palazzone, a jazz club in Harlem and his work for private equity firm Providence Equity Partners, according to The Wall Street Journal.

Parsons rose to prominence as an aide to well-known political figures like former New York State Gov. Nelson Rockefeller and President Gerald Ford. In the late 1980s, Parsons got his start in banking at Dime Savings Bank of New York, where he helped the bank through the savings-and-loan crisis. In 1991, he was elected to Time Warner's board. After a blockbuster merger with AOL in 2000, Parsons became chairman and CEO of the combined companies, until his replacement by Jeffrey Bewkes in 2008.

Citigroup CEO Pandit praised Parsons for his tenure as chairman as the bank underwent drastic overhaul to respond to the crisis. " It was under his stewardship of the Board that Citi was able to return to a position of strength among its peers. I will miss his guidance, expertise and perspective," said Pandit in a statement.

-- Written by Antoine Gara in New York

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