What Citi CEO Pandit to-do list for his first month on the job

About 10 days ago, Vikram Pandit announced that Citigroup lost nearly $10 billion in the fourth quarter of 2007 and will be cutting its stock dividend by 40% and laying off another 4000 employees. Not surprisingly, Wall Street was not impressed at all and punished the stock some more. Worse, no one seemed to care that much that Pandit has been CEO for only a month at that time. I am frankly not impressed. In fact, I think it does not take a rocket scientist to figure out that Pandit probably overpaid for his education, sadly. CNBC's Mad Money host Jim Cramer said on Thursday's Squawk Box that the press release from Citigroup and Merrill Lynch were filled with financial fiction. This is one of the few times where I think Cramer got it right. Pandit might be a smart, bright and capable fellow, but I fear he is woefully ill prepared for this job. My advise in these cases is forget the board meeting and start laying off people in the investment bank and articulating a forward vision of what Citigroup need to look like in say five years.

One might be wondering whether I have any ideas as to what to do if I had the job. Well, broadly yes kind of. I would start by putting a hiring freeze on the investment bank and start laying off people in the fixed income division and hedge funds. An investment bank has four divisions, namely mergers and acquisitions, fixed income, equity and industry analysis. The problem is started with the fixed income division buying these securitized investments like structured investment vehicles, credit default swaps and collateralized debt obligations. The investment in sub-prime came from the fact it was perceived to be easy money. The entire sub-prime business was to cater to homeowners with spotty credit history and a low FICO score in need of a loan. Banks in the past, say 15 years ago, will not grant loans to such perspective homeowners with bankruptcy and foreclosures naturally. So private lenders or real estate investment trusts (REITs) may come in and arrange for such a loan at three to four times what the current Prime Rate was at the time. Banks lend regular borrowers with nomal FICO scores at Prime Rate. They would take these collateralized debt obligations and securitize it before selling them to large financial institutions. Citigroup, being the biggest bank by assets, obviously felt the need to outperform its peers and the fixed income division bought these so called triple A rated securities.

After cleaning house at the investment bank, I would start looking at selling certain businesses and combining businesses. I would have sold the private label brand credit cards like department store cards, Diners Club and American Express cards. Department store credit cards like Home Depot and Sears tend to cater to less credit worthy barrowers. American Express and Diners Club cards just increase the number of divisions and employees unnecessarily within the credit card portfolio. Hence, selling the private label brands, American Express and Diners Club cards would make that portfolio reduce the cost and the exposure to consumer defaults. At the same time, the credit card business should be folded into the commercial bank. In the process, the company could also reduce its labor costs by laying off some of the high paying management personnel including former Treasury Secretary Bob Rubin. There also needs to be a dramatic transformation within that division regarding Citigroup rewards, such as the variety of credit cards with or without rewards from Citigroup like cash back, value (or no annual fee) or Citigroup rewards like Thank You points. In all those cases, Citigroup should use the example of Canada's Bank of Montreal by providing consumers with modular credit cards where the consumer could choose what rewards or features one desires with a phone call anytime.

One of the top priority is a mew mission statement reaffirming its commitment to providing global banking services to the consumers, especially the high net worth international clients from the standard bank accounts to private banking to investment and brokerage services. Citigroup's biggest problem in commercial banking derives from their lack of presence in certain parts of the country like in the American South and the Pacific Northwest. It cannot be a world-class commercial bank when it has less than a thousand branches domestically, regardless of the depth of the service they can provide. No serious commercial bank would operate with so few branches. At the same time, one does not need five thousand branches all over the country; the way Bank of America operates. The other part of the problem is that some branches are within too close to each other to serve the company any good and in some places, I cannot find a branch anywhere like in Oregon or Durham, North Carolina. In the case of Oregon and Durham, they just do not have any branches. Citigroup needs to evaluate where their branches looks like Starbucks outlets and where they are utterly invisible.

Finally, a serious re-evaluation of Citigroup's home loan policy is needed. This entire fiasco could have been avoided if the loan officers thought about what they were doing before approving homeowners for loans. The only way to avoid these hazards is to check the barrower’s cash flow before writing check. It is insane to lend money to an individual earning $100,000 a year to buy a million dollar home when that person's cashflow is in the negative after taking on this burden. It does not take a rocket scientist to figure out that a bank should not lend such a perspective barrower money. Worse, the majority of his or her income is from commissions. Part of avoiding this fiasco in the future is to stop relying on the barrowers credit scores as a barometer of creditworthiness, stop originating exotic mortgages like option adjustable rate mortgages (or option ARMs) and other loans that could result in negative amortization, stop making home loans to costumers with zero down and 100% financing.

These are the sort of actions Pandit needs to be taking to reassure investors that Citigroup will have its house in order to prosper in the future and that Citigroup will be a lean mean banking giant with plenty of muscles and without all the proverbial excess fat. Raising capital to cover these losses is necessary in the short term, but in the long term is to increase deposits and reduce unnecessary spending in the form of high compensation packages.

My reaction to the Mitchell Report accusations of the Rocket: Give me a break

The Mitchell Report regarding the use of steroids and other human growth hormone in baseball came out before Christmas. Unfortunately, it is damning by any measure and gives the sport a very ugly black eye. Former Sen. George Mitchell was correct to say that everyone has some responsibility including the Commissioner and that it is not just the players. That much is not in dispute. There is plenty of blame to goes around. More importantly, it names an awful lot of ball players involved in the use of steroids. Some of them I believe did like Mark McGwire and Barry Bonds.

As for Roger Clemens’ involvement, I say give me a break. Clemens, now 43, stands accused of using performance enhancing drugs, at an age when most other pitchers would have retired. I would like to believe that he didn't use it, but I am sure glad he will defend himself on CBS 60 Minutes and for the public record. However I would not be surprised if he did. I mean his fellow pitcher Andy Pettitte admitted using human growth hormone for the sole purpose of expediting his recovery time and frankly no one likes being on the disabled list for a long period. Frankly, for the Rocket, Clemens' nickname, to pitch the sort of fast balls that he is famous for throwing at his current age, it would be a testament to his fitness or to his drug use, if you are the cynic.

Roger Clemens reminds me of a fictional Detroit Tigers pitcher Billy Chapel from the movie For Love of the Game. At the bottom of the 9th inning, the commentator summed up Chapel's big decision, which resembles Clemens' predicament in many ways. Like the 40-year old Chapel, baseball has been Clemens' life, perhaps as the commentator, Vin Scully the renouned sportscaster, rightly said more important and bigger than life itself. Clemens and Chapel are fighting not only time and age, but also against ending and retirement. Frankly, no one knows what to do with a retired professional athlete like Clemens or Pete Sampras. Chapel had a 19-year career and probably threw 75,000 to 76,000 pitches in 4100 innings; Clemens has a career spanning over 20 years and threw many more pitches in more innings than Chapel ever did.

I may never have watched an actual game at a ballpark, but I am glued to my television set and the cell phone for every post-season game since my college days. I watched Roger Clemens' infamous and complete meltdown at the American League Championship Series (ALCS) at Fenway Park against Boston Red Sox ace, Pedro Martinez, and his magnificent performance at a later ALCS game, perhaps it was Game 7, in the Bronx against Martinez. It is a thrill to watch Clemens at his best work and he deserves every one of those Cy Young Awards.

Also, one must remember Clemens is part of the folklore better known as the Curse of the Bambinos when Boston traded him to Toronto believing Clemens' glory days are over. Gee whiz, that guy could not be further from the truth than it is humanly possible. Like the many infamous moments associated with the Curse, such as Billy Buckner's misplay at Game 6 of the 1986 World Series and the decision to keep Pedro on the mound for an extra inning at Game 7 of the 2003 ALCS, this deserves to be one of those moments or decisions that one should ask what was management thinking.

The bottom-line is it doesn't change one thing - my love for the game. I will continue to be a New York Yankee fan. As for Roger Clemens, he is still one of the great pitchers of all times. If he used steroids or human growth hormones, it would only put in perspective the greatness of ballplayers of an earlier generation, namely Yogi Berra, the Yankee Clipper Joe DiMaggio, Babe Ruth, Mickey Mantle and those guys who did not benefit from modern medicine. Also, one cannot blame someone for trying to level the playing field after someone has already started cheating.

Iowa 2008: And they are off.

Yesterday I discussed the upcoming US elections over a family dinner with my family and a long time family friend. The general consensus was the Republicans could be headed for a brokered convention. This happens only when no candidate manages to secure a majority of the delegates going into the convention. Hypothetically Huckabee wins Iowa, Romney takes New Hampshire and McCain is victorious in South Carolina, this leaves national candidates like Rudi Giuliani and Fred Thompson with a shot at the nomination and further their Republican appeal (in contrast to the Conservative appeal). The Republican race as it currently stands is a free throw.

It is the Democratic race that we argued over. My parents and the friend believe that Hillary Clinton will carry the nomination. I want Barack as the nominee. Here is an incredibly appealing story of an American dream. A young African American man of humble origins attends Harvard Law School, comes out to run for Illinois state senate and wins. Two years ago, the state Democrats encourages him to run for US Senate and wins again. That was on the premise of his opposition to the War in Iraq and for getting it right the first time round, unlike Hillary. It is an amazing political rise from state senator to US senator practically overnight. How can anyone not support this fellow?

Frankly, I am sick of this White House duopoly between the George Bushes (41st President George H W Bush and 43rd President George W Bush) and the Clintons. More importantly, Hillary represents the Washington establishment and insider as well as the status quo. Former President Bill Clinton said on Charlie Rose on a couple of weeks ago that America should elect the person that is the best agent of change and not the best symbol of change. Bill was right, Hillary represents change and is the best agent for change as in what happens when a new party comes into power, but she is not the best agent of change as in reform. I agree that we should choose the best agent, but Hillary has been in Washington far too long to be the best agent for change. She has spent the better part of the last 20 years in Washington - First Lady in the White House in the 90s, then US Senator on Capitol Hill this decade. Sadly, she spent the better part of last year and will spend a better part of this year on the campaign trail wowing voters instead of doing Senate business, but so has every other Senator wanting to be the next President of the United States.

As one British Conservative Member of Parliament so famously hurled a line from Oliver Cromwell to the Long Parliament in 1655 at his own Prime Minister, Neville Chamberlain, in 1940, Cromwell said, "You have sat here too long for any good you have doing. Depart, I say, and let us have done with you. In the name of God, Go!" I say the same to Hillary.

The Democratic primary this year resembles the 1960 election. Hillary is Lyndon Johnson and Barack is John Kennedy. Like Johnson, Hillary is running on her experience. She claims she does not need on the job training. She claims this is not the time for a new hand on deck. Like Kennedy, Barack has spent very little time in Washington. He is young, charismatic and has a young family to complete the perfect picture of youth. Unlike Kennedy, Barack represents the American dream to the letter. He can be to the Democrats what former Secretary of State and Chairman of the Joint Chiefs of Staff Colin Powell was to the Republicans. Barack is the best symbol AND agent for change as in reform. He is not interested in being the old New Democrat like Hillary.

Yes, Hillary has the experience, but she has one big problem that no other Democratic candidate has, that is her name alone sparks the wrath of the Republican Party. If the Democrats nominate her, every Republican will unite under the banner of whoever becomes the Republican nominee. If the Democrats nominate Barack, John Edwards or any other candidate, chances are pretty good that the social values voters, or the religious right, may bolt and put forward their own candidate. Thereby splitting the Republican vote and giving the Democrats a clear shot to the White House.

It is worth remembering that in recent world history only two women among a few have enjoyed any substantial success as national leader, namely Margaret Thatcher and Golda Meir. Yes, there have been other female leaders of countries like the late Benazir Bhutto of Pakistan, Mary Robinson of Ireland, Kim Campbell of Canada, Catherine the Great of Russia. Sadly, none of these women enjoyed any success in a democracy, except Robinson as President of Ireland (but the Irish Presidency is an appointed position and not a popularly elected one). Yet, in the process of winning their Party's leadership and their country's premiership, Thatcher and Meir have shed a good portion of their feminity. In fact, both women and Catherine the Great of Russia are known for being something of an Iron Lady. Thatcher and Meir for sure had the nickname of Iron Lady. Catherine of the Great certainly has the necessary reputation to secure that nickname. Hillary, I am sorry to say, has none of it.

The truth is many of America's greatest presidents entered office with little national and, in some cases, no international experience. Franklin Roosevelt, Reagan and Clinton had no foreign policy experience before coming into the Oval Office. Roosevelt entered the White House in the midst of the Great Depression with a world in chaos. Yet, it is not too modest to say that Roosevelt saved Western civilization and the British necks from the clutches of Nazism. Most historians will not argue that Roosevelt is one of the three greatest presidents along with George Washington and Abe Lincoln. For her to accuse Barack of needing on the job training is outrageous, Bill Clinton needed on the job training as well or is she prepared to prove that Bill has the necessary foreign policy and National Security background to serve as President before becoming President.