Housing: The nail in Pandit's coffin?October 16, 2012: 10:14 AM ET
Vikram Pandit's resignation comes a day after Citigroup admitted it missed the refinance boom.
FORTUNE -- This time Citigroup may not have gotten to the dance soon enough.
On Tuesday morning, Citi's CEO Vikram Pandit said he was stepping down. The bank announced that Michael Corbat, a long-term veteran of the bank and former head of investment banking, was taking over.
Pandit's resignation comes one day after the bank announced third quarter earnings that showed Citi (C) had missed the recent rebound in mortgage lending. Following a long telegraphed move by the Federal Reserve, falling mortgage rates have spurred a refinancing wave in home loans. What's more, a higher than normal spread between mortgage rates and other interest rates have allowed a number of banks to mint money in their home loans division.
MORE: Citigroup's Pandit out
Citigroup is the exception. Mortgage lending dropped in the quarter from a year ago. Citi's CFO admitted on Monday that the bank was late to staffing up in the area. The bank's lack of ability to pivot and get back into the housing market, something its rivals appeared to do with ease, could have been what finally pushed the board to decide that Pandit should go.
Indeed, the counts against Pandit seemed to be adding up in the past few months. Earlier this year, Citi "failed" its Federal Reserve stress test after Citi executives requested the ability to increase the firm's dividend, which many saw as a major miscalculation. As a result, Citi emerged looking weaker than other banks that hadn't proposed a dividend increase.
Following that, shareholders voted to reject a package that would have paid Pandit $15 million. Citi has said that the board is reviewing Pandit's pay. A spokesman declined to comment on the status of that review. More recently, Citi appeared to lose out to Morgan Stanley in its negotiations over the sale of the bank's Salomon Smith Barney brokerage unit. In the recent quarter, Citi was forced to take a $3 billion loss on the sale. Along with housing, the defeat on SSM may have been the final straw for Citi's board.
What's more, a source says there has been growing tension between Pandit and Citi's board of directors. The person says that in particular the relationship between Pandit and Citi's chairman Michael O'Neill appeared to have soured. On top of that, Citi's stock, unlike the shares of other banks, has yet to recover from the financial crisis. Citi's shares remain down about 90% since Pandit took over in late 2007.
Just four years ago, Citi was roundly criticized for failing to see warnings that housing was about to cause massive problems in the mortgage market, and massive losses for the bank. It's CEO at the time Chuck Prince explained his misstep by saying that as long as the music is playing you have to keep dancing.
Once again, Citi appears to have missed a big turn in financial markets, and come out the loser. On Monday, Citi's CFO John Gerspach said that he didn't see what everyone else seems to be talking about when it comes to a mortgage rebound. He said he had doubts whether the weak economy could be enough to sustain the housing market. What's more, throw in uncertainty around the election and the fiscal cliff and what you get is a reasonably good chance that the current housing market rebound will be short-lived.
"I don't use phrases like `turn the corner,'" Gerspach said. "I have difficulty seeing corners sometimes, so I'm not sure what corner we may have turned."
This year, though, nearly every gauge of the housing market appears to have turned up. In the past few months, a number of prominent observers have said they think housing is rebounding. Last week, Jamie Dimon, CEO of JPMorgan Chase (JPM), said just that. And executives of Wells Fargo say they see a housing rebound as well. Roger Altman, chairman of Evercore Partners and former deputy Treasury secretary, recently wrote in the Financial Times that the housing market has turned and could be booming again by 2015. Earlier this year, Warren Buffett said he would bet on a housing rebound.
Even Citi's own chief strategist has been saying for months that a housing rebound is in the works. In a presentation from early August, Tobias Levkovich, Citi's top U.S. market strategist, wrote of the U.S. housing market that "a bottom seems very likely and probably sooner rather than later." Apparently, Pandit missed that powerpoint.