3 Big Questions for Citigroup After Telling Pandit to Push Off

Story updated with comments from the Chairman and new CEO from analyst call.

NEW YORK ( TheStreet) -- Citigroup ( C) shareholders have more than a few questions after the sudden resignations of CEO Vikram Pandit and COO John Havens.

A Citigroup conference call with Chairman Michael E. O'Neill and newly minted CEO Michael Corbat late Tuesday did little to squash the conspiracy theories behind Pandit's exit.

According to a Wall Street Journal report, the CEO resigned over clashes with the board over strategy and performance, a day after the bank reported a purportedly good quarter .

Vikram Pandit has denied that there were any clashes on pay or strategy with the board and told CNBC's Maria Bartiromo that the departure was his decision.

And in the analyst conference call, Chairman Mike O' Neill and newly- appointed CEO Mike Corbat stuck to the script. O'Neill said no strategic, operation or regulatory issue precipitated the resignation, nor was it a result of any ethical misconduct.

He said that the board had been planning a successor to Pandit for two years and that Corbat was at the center of the process.

Corbat added that the management change "does not reflect any desire to alter the strategic direction of Citigroup, which we believe to be the right one."

When CLSA analyst Mike Mayo asked O' Neill if the reason for Pandit's departure was over pay, the chairman said "Categorically, no. Vikram offered his resignation and the board accepted it."

But not everyone is buying it.

Also, while critics have complained that Pandit should have stayed on to manage the company's transition to a new CEO, O'Neill said the timing was "fortuitous." Corbat takes over at a time when the bank is going through three critical processes- budget planning, updating a three-year plan and submitting a request for capital approval with the Fed. It was critical that he be part of the process and set targets in order to be held accountable in the future, O'Neill said.

Given the timing of his takeover then, it would not be too presumptuous to assume that there will be changes.

While Corbat said that the bank's strategy remains intact, he hinted earlier that changes are afoot. "As a first step, I'm going to take the next several weeks to immerse myself in the businesses and review reporting structures," Corbat said in a memo to employees, reviewed by TheStreet. "These assessments will result in some changes, and I will make sure to communicate these changes with you as decisions are made so that you are informed and updated."

The promise of change could not be more welcome for Citigroup's shareholders. The stock is up nearly 40% year-to-date, but is still down more than 90% in the five years Pandit has been CEO.

Shareholders showed their displeasure by roundly rejecting Pandit's 2011 pay package of $15 million earlier this year.

But perhaps even that was not enough. Shareholders seem eager for a new game plan for Citi.

Pandit's plan for Citigroup has been pretty straightforward since he took over in December 2007 and steered the bank through the crisis. Expand in international markets, return to traditional banking, wind down non-core assets and return capital to shareholders.

So what could change under the new CEO? Here's three big questions facing Citigroup.

1. Will the international expansion continue?: Citi has made considerable progress on international expansion. According to a recent presentation made to investors, the bank derives 60% of its revenues from international markets.

This has also been a strategy industry analysts have been on board with, amid moribund growth in developed economies. The company is also beginning to see key markets in Latin America and Asia turn a profit on an operating basis.

Corbat has considerable experience in international markets and last held the position of CEO for Europe, Middle East and Africa. In the conference call, Corbat said the bank would continue to pursue growth in the fastest growing markets.

Perhaps he might consider repositioning the bank in certain markets and consolidating some of the bank's presence in order to boost efficiency, though he refrained from making any specific comments.

Citi has not been without its share of problems in Asia, notably Japan, which already is a stagnating economy. The bank has been penalized thrice by Japan's regulators for various violations in its retail banking and private banking operations. That led the bank to institute management changes in Japan and spin off the country into a separate operating unit.

In Korea, the company is facing "regulatory headwinds," Citi revealed on Monday. The bank said it is repositioning its operations in the country.

2.What Will Happen to the "Bad Bank": Pandit reorganized Citigroup into a good bank, Citicorp, that focused more on traditional lending activities and a bad bank, Citi Holdings, that held non-core assets that the bank was eager to exit after the crisis.

Here again, Citi has met Pandit's target. Consumer banking now accounts for 56% of its business compared to 28% in 1998.

And the bank has sold nearly 100 non-core businesses since 2008, reducing its "bad bank" Citi Holdings to less than 10% of its assets from a 40% share in 2008.

Corbat, who previously held the position of CEO of Citi Holdings, is widely credited with executing this strategy.

But within core banking, there is still room for improvement. According to a Wall Street Journal report citing people familiar with the matter, Pandit clashed with the board over "strategy and operating performance at businesses including the institutional clients group."

Citi has lagged its big bank peers in investment banking and trading, though in the third quarter, the bank delivered a superior performance in fixed income trading.

Making more credible market share gains in trading and investment banking might be a course of action for Corbat.

3. When will Citigroup return capital to shareholders: On the promise to return more capital to shareholders, Pandit clearly under-delivered.

Earlier this year, the Federal Reserve determined that the bank would not be able to sustain a severe shock to the economy if it pursued an aggressive buyback plan. This came as a surprise to Pandit, who had assured shareholders that the bank was in a position to return capital.

Read >> Citigroup is the New Bank of America

The management maintained in their earnings conference call Monday that they are well placed to return significant capital in the future, though Pandit this time cautiously refrained from making any promises for 2013.

Oppenheimer analyst Chris Kotowski speculates in a report Tuesday that it is possible the board decided that "Pandit's relationship with regulators was too strained and that they would increase the chance of substantial capital returns in next year's CCAR process with his departure."

Perhaps with a new CEO at the helm with a reputation for prudent risk management, the bank will have a shot with the regulators.

In the conference call, Chairman O'Neill said that it was "critical" for a bank to maintain good relationships with its regulators and said that Mike Corbat was "very well viewed" by regulators for his role in winding down Holdings.

-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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