Citi eyes Pandit: Does it still care about retail banking?

Is Citi going to buy Vikram Pandit’s hedge fund, Old Lane? According to today’s WSJ, yes. The WSJ runs down the list of reasons why such an acquisition would make a lot of sense: Pandit would immediately beef up Citi’s alternative-investments arm, which has been headless for a year, and might also make an excellent potential successor for Citi CEO Chuck Prince down the road.

The mooted acquisition price of $600 million doesn’t seem ridiculously high for a $4 billion hedge fund: if such a fund makes 2-and-20 and has a 15% return, that would mean income of $200 million in just one year.

If Pandit does pop up at Citi, who would he be up against in the CEO-succession stakes? Here’s the WSJ:

If Mr. Pandit joins Citigroup, his arrival could ignite a more vigorous contest among executives who could become potential heirs to Mr. Prince. He could be facing off against Michael Klein and Thomas G. Maheras, co-heads of Citigroup’s corporate and investment-banking unit, and Ajay Banga, who runs the international consumer business.

The interesting thing here is that three of the four named potential successors, including Pandit, are investment bankers at heart, even though Citigroup isn’t really an investment bank. Which raises one fascinating idea: might Citi, at some point, consider selling or spinning off its retail arm? Its performance certainly hasn’t been much to write home about compared to the likes of Wachovia or Bank of America. But without a cheap deposits base, it would be even harder for Citi to succeed in the investment banking business – which these days requires a huge amount of capital.

This entry was posted in Portfolio. Bookmark the permalink.