Citigroup's Future May be Out of Pandit's Hands

Citigroup CEO Vikram Pandit faces an unfortunate truth -- it's the economy, stupid.

The executive has pulled virtually all the available levers in trying to turn Citi around. He cleaved the company in two, quarantining its most noxious assets in hopes of eventually selling them off. He axed tens of thousands of employees to cut costs, including some of his hand-picked lieutenants. He jettisoned once promising divisions. He raised capital to ease regulatory concerns, then repaid some of it to get the government off the company's back.

Indeed, since coming aboard in 2007 Pandit has effectively thrown what was once the world's largest financial experiment -- an unprecedented combination of banking, brokerage and insurance services -- in full reverse.

It may not be enough. Citi's announcement today that it lost $7.6 billion in the fourth quarter and missed analysts' revenue forecasts highlights the company's continuing struggles. For Pandit, it also underlines an unfortunate truth: The financial giant's near-term financial performance may be largely out of his hands.

Much of the quarterly loss comes from an $8 billion pre-tax charge Citi took to repay TARP. Most of the rest stems from losses on consumer, and particularly mortgage, loans. With unemployment still in double figures, many Citi customers -- many Americans -- remain in a world of financial hurt. They can't pay their debts. For a battleship like Citi that's largely powered by its consumer banking division, such conditions make it hard to grow organically. Unless the economy makes a startling recovery, in other words, Pandit's in trouble.

The company's strategy of walling off its most toxic assets within Citigroup Holdings also depends on the economy. Investors must feel confident enough about their prospects to take a flyer on distressed Citi loans. If the economy falters, or simply continues to show sluggish growth, that strategy hasn't got a prayer.

Citi shareholders, meanwhile, make no bones about this being a make or break year for Citi. The U.S. government remains the company's largest investor, with a 27 percent stake. The public scrutiny on Wall Street these days means the company has virtually no margin for error. If Citi blows another quarter or two, pressure will grow on the Treasury Department to take a scalp -- Pandit's.

The company's historically most bullish (now burned) stockholders are also restless. Saudi investor Prince Al-Waleed Bin Talal, whose $13 billion stake in Citi has withered to less than $750 million, has been all over the media in recent days to deliver the message that it's time to deliver:

"I met Vikram [Pandit]. I told him, 'The honeymoon is over now and 2010 has to be the year whereby you begin showing the world that you are a force to be reckoned with and get back Citigroup's name to where it was pre-2007 crisis.'