Citigroup Inc. paid a hedge-fund manager with a doctorate infinance more than $200 million over five years to save the bankfrom the brink of collapse. Now it's turning to a former Harvardfootball lineman to run it better.

The board of directors replaced Chief Executive Officer VikramPandit with Michael Corbat, who “will place a special emphasis onsharpening the company's focus on achieving sustained, strongoperating performance,” Chairman Michael O'Neill said on aconference call yesterday.

That may mean cutting jobs, overhauling management, exitingbusinesses and improving ties with regulators, who this yearblocked Pandit, 55, from fulfilling a pledge to restore shareholderpayouts, said analysts, investors, employees and former FederalDeposit Insurance Corp. Chairman Sheila Bair.

“He's very strong operationally, which is what Citi needs,”Bair, who took part in discussions over the lender's $45 billionbailout in 2008 and later pushed for changes to the company'smanagement and board, said of Corbat, 52. “He was always on top ofthings.”

Pandit, whose doctoral thesis for Columbia University was titled“Asset Prices in a Heterogeneous Consumer Economy,” was oustedafter the board concluded his mismanagement had caused setbackswith regulators and cost credibility with investors, a person withknowledge of the decision said yesterday, requesting anonymitybecause the deliberations were private.

The Federal Reserve in March blocked Pandit's proposal toincrease payouts to shareholders, who rejected his compensationplan in a non-binding vote a month later. Moody's Investors Servicecut Citigroup's credit rating by two grades in June, and last monththe bank took a $4.73 billion pretax writedown on the value of itsstake in a brokerage venture with Morgan Stanley.

Among Corbat's first tasks as CEO of the New York-based lenderwill be to prepare a submission for the next round of Fed stresstests in early 2013, O'Neill, 65, said on the call. It failed partof the test this year.

The new CEO also may have to weigh in on whether big banksshould be broken up, a debate stoked in July when Citigroup founderand former Chairman Sanford I. “Sandy” Weill said he advocatedit.

Citigroup plunged about 89 percent since Pandit took over as CEOon Dec. 11, 2007. The shares have climbed 42 percent this yearthrough yesterday.

Corbat has a bachelor's degree in economics from Harvard inCambridge, Massachusetts, where he played football as anall-conference offensive guard.

'Torch Fat'

He was assigned by Pandit in April 2009 to divest $573 billionof assets as permanent head of the Citi Holdings unit, which heldunwanted businesses. They included private-equity stakes, autoloans, a life insurer, a student-loan firm, a fund-of-hedge-fundsbusiness as well as mortgages and corporate bonds. In 2010, hepursued an exercise regimen called the Spartacus Workout that,according to MensHealth.com, is designed to “torch fat” and “sendyour fitness level soaring,” people with knowledge of his routinesaid.

The Spartacus Workout entails a series of minute-long exercisesincluding squats, pushups and dumbbell lifts, with 15 seconds ofrest in between, according to MensHealth.com. The process isrepeated twice. Corbat also is a trustee of the U.S. Ski andSnowboard Team Foundation.

By the end of 2011, when Corbat was transferred to become thebank's European regional chief, the assets in Citi Holdings hadbeen cut 61 percent to $225 billion.

As CEO he'll look to dispose of more businesses and cut costsfurther, said Tom Brown, who runs hedge fund Second Curve CapitalLLC, based in New York. It's a strategy O'Neill used in the early2000s as the chief of Honolulu-based Bank of Hawaii Corp., wherethe stock price tripled during his tenure.

While Bank of Hawaii revenue dropped on his watch, costs fellfaster, boosting profit, Brown said.

O'Neill became known for a “relentless focus on process,” Brownsaid. “O'Neill's going to help Corbat in that regard.”

Citigroup, the third-biggest U.S. bank by assets, might sell orshut some of its 1,017 bank branches in North America, said GerardCassidy, an analyst with RBC Capital Markets in Portland,Maine.

“Citi had a grandiose plan of retail banking in major urbanareas around the world,” Cassidy said. “O'Neill and now Corbat willtake a very hard look at business lines that may not justify theirremaining at Citi.”

O'Neill, Corbat and Pandit didn't respond to interview requestsyesterday.

Spider-Man

Corbat told graduates of the all-boys Salisbury School inConnecticut that “short-term thinking is what led to the downfallof some of this country's once-great companies,” according to atranscript of his 2010 commencement speech on the school's website.He was a trustee of the preparatory high school, which his son hadattended.

He also quoted the comic-book character Spider-Man. “With greatpower comes great responsibility,” he said.

Corbat joined Salomon Brothers Inc. in 1983. The Wall Streetfirm became part of Citigroup under Weill in the 1990s.

Corbat became head of emerging markets in Citigroup'sfixed-income unit, and took over corporate lending in 2004. Fouryears later he was assigned to run the wealth-management division,which included serving ultra-high-net-worth clients.

His pay totaled $9 million for 2010, including a $500,000salary, $3.4 million cash bonus and stock awards valued at $5.1million, according to a company filing. His pay for 2011 wasn'tdisclosed. Citigroup said yesterday that Corbat will receive a basesalary of $1.5 million as CEO.

Bank cleanups haven't always been seamless for Corbat.Resolution Trust Corp., the government agency that sold the assetsof failed savings-and-loan institutions, alleged in 1995 that hewas one of two Salomon employees who broke ethics rules byentertaining the agency's employees.

Corbat, whose firm earned $45.9 million in fees from the agency,discussed asset sales while spending $1,456.17 on a day of huntingin Millbrook, New York with two Resolution Trust employees, the NewYork Times reported then.

The agency's inspector general found no connection betweencontracts and the entertainment.

Steve Bell, the other Salomon employee cited, said in aninterview yesterday that the consequences were minimal.

“In essence they said 'Don't do it again,'” he said, adding hedoesn't recall any fines.

Corbat was “a straight-shooter,” said Mark Field, a formerSalomon colleague who's now a senior managing director atGuggenheim Securities LLC.

'Good Guy'

“In the land of Wall Street, where you meet all types, he wasjust a good guy,” Field said.

Corbat gave underlings the feeling they were working with himand not for him, said Richard Couch, a managing director in CitiHoldings's financial office until 2010. Other executives at thefirm, he said, “definitely walked around with a little more of anair that they were in charge and you needed to do what they did, orelse.”

Corbat must show colleagues that Citigroup can “come back to atime when they were a prestigious and well-thought-of institution,”Couch said. It “hasn't been that way for many years now.”

Roger Caron, a fellow Harvard lineman who played in the NationalFootball League, said Corbat once told him to stay on the fielddespite a knee injury.

“He kept encouraging me to play on,” Caron said.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.