It's pretty obvious -- but not certain -- that Citigroup (NYSE: C) will report a worse-than-anticipated fourth quarter loss. Otherwise, why would there be so much discussion about selling Smith Barney, replacing Citi's Chairman Win Bischoff with Dick Parsons, former Time Warner (NYSE: TWX) Chairman, and maybe dumping current Citi CEO Vikram Pandit? The way the game is played, it looks better to be making changes prior to the announcement of bad numbers rather than after it.
But after losing $10 billion in the first three quarters of 2008, Citi appears poised to add not $2 billion but as much as $10 billion in losses to that total. Of course, the board is expressing confidence in Pandit's first year of leadership at Citi. He's been able to convince the government to cough up $45 billion in cash and guarantees on $269 billion of illiquid mortgage assets. And he might be able to sell Citi's share of Smith Barney to Morgan Stanley (NYSE: MS) for $2.5 billion in cash which would create a $6 billion after-tax gain.
The key threat for Pandit appears to be that Rubin -- who left Citi after a decade in which he took in $126 million as an advisor while Citi lost $164 billion in market value -- was a Pandit supporter. With Rubin gone, Parsons, who is Citi's lead director, has been weighing Pandit's future. The New York Times reports that Parsons has "met privately with several of the bank's top executives for lengthy discussions about their businesses, and in some cases, Pandit's management style."
If Citi announces a $20 billion loss, will it also announce Pandit's replacement?
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and is the author of You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns Citi shares and has no financial interest in the other securities mentioned.