Bottom Line: Corbat flies the crow’s route to recovery

 
Elizabeth Fournier

MIKE Corbat knows Citigroup inside out. He’s an industry lifer who has worked for the bank in various guises since joining Salomon Brother in 1983 – 15 years before it was swallowed by Citi as part of the Travelers merger.

Now, just nine months into the top job, having taken the reins from Vikram Pandit last October, Corbat’s experience is paying off.

Second quarter net income of $4.2bn didn’t just beat forecasts and impress investors – it gave Citi its best half-yearly performance since before the financial crisis in 2007.

But despite the stellar profits, and the fact that Citi’s share price has risen 90 per cent in a year, Corbat’s path to recovery has hardly been a revolution. An already strong capital position has been bolstered to a Basel-pleasing 10 per cent through disposals, while headcount is down by 8,000, driving overall costs lower. These are programmes that the previous management had put in place, but that Corbat is steering to fruition.

Things had got messy under Pandit, with government intervention leading the former CEO to take a $1 salary for two years – a move that subsequently backfired when matters improved, as his pay soared to $23.2m and 55 per cent of shareholders voted against the package despite renewed profits.

So far, Corbat is avoiding a similar response. Analysts love his straightforward delivery of the facts, while investors think his cost-cutting strategy is the way to go. But the bank’s return on equity, while moving in the right direction, remains too low.

Under Corbat’s guidance Citi may not be going anywhere different, but it is taking a straighter path to get there – a path that should keep shares on the right trajectory too.