[ by Melanie Gretchen ]

Mr. Corbat has a long road ahead of him.

By assuming the role of CEO of Citigroup to replace Vikram Pandit, Mr. Corbat has undertaken the role of a lifetime.  Namely, he is responsible for taking the bank out of "too big to fail" territory to, among other things, shield taxpayers and Citi's reputation.

The Road Ahead. What Mr. Corbat has to work with:

• Citi's history. Citi failed latest round of stress tests this spring and was unable to immediately produce a full accounting of its assets or operations, suggesting deeper troubles than  a misplaced file or record.  [C-I Note: In her book "Bull by Horns," former FDIC chairwoman Sheila Bair wrote that it took Citi almost 1 year to itemize the troubled assets that it wanted the government to guarantee as part of the various bailouts.)

• Citi's dependence on taxpayers' assistance in 2008, 2 years after the New York Fed lifted a yearlong ban on big mergers, according to Edward Kane, a professor of finance at Boston College:
  • "These managers are currently exploiting taxpayers as a means to an end.  They feel entitled to do this and they don't see any ethical issues in it."
  • As a solution, Professor Kane proposed that large and implicitly guaranteed institutions like Citi should be forced to give taxpayers an equitable interest in them – in the form of either a dividend or an insurance premium paid by the institution and based on the losses that could arise if it required a bailout.  [C-I Note: Would shareholders' support be enough to push that through, considering say-on-pay votes often don't count?]

• The marketplace's predisposition for risk-taking, according to Gary Stern, former president of the Federal Reserve Bank of Minneapolis:

   

   

   

  • "Very large institutions do have advantages in the marketplace when they are not allowed to fail.  This perception leads to excessive risk-taking, not because management says 'let's take more risk,' but the way things are priced in the marketplace encourages more risk-taking."

In Mr. Corbat's Favor. What distinguishes Mr. Corbat from his predecessors is that he is a banker at a banking firm that has been helmed most recently by a lawyer (Charles O. Prince III in 2003) and a hedge fund manager (Mr. Pandit in 2007).  To his advantage, he may find an ally in chairman Michael O'Neill, also a banker, and the absence of a sour history with regulators that plagued his predecessors.

C-I Note: Can Mr. Corbat create a new history?  Will he need and/or get more time than his predecessors?  Will the challenges he faced as head of the legacy holding indeed prepare him for the behemoth that Citi has grown into?

For further details, go to [NY Times, 10/20/12].