Vikram Pandit is wasting little time putting his stamp on Citigroup. Just two days after his December 11 promotion to CEO, the former chairman and CEO of Citi’s institutional clients group decided to bring $49 billion in structured investment vehicles onto the bank’s balance sheet to minimize potential losses should the SIVs be downgraded by credit rating agencies.
That attention-getting decision, which reversed the bank’s previous stance, set a bold new tone for the struggling colossus. But a much less headlined action, undertaken the day before Pandit was named to the top post, may have similarly profound consequences for the surging investment banking division. The December 10 deal to buy private equity investment shop Metalmark Capital has already made senior Citi investment banking executives uncomfortable, say knowledgeable sources, because the bank had previously told clients it would not compete with them
on private equity transactions.
The Metalmark buy is part of Pandit’s drive to expand Citi’s reach in alternative investments. The former Morgan Stanley executive became head of Citi’s alternatives unit in June, when he and fellow Morgan Stanley alumnus John Havens sold their hedge fund firm, Old Lane Partners, to the bank for an estimated $800 million. In October, Pandit’s role broadened to include oversight of Citi’s investment bank, while Havens took over as head of alternatives.
Metalmark, which has invested some $7 billion in equity capital in corporate acquisitions since its founding two decades ago as part of Morgan Stanley, focuses primarily on middle-market buyouts. This kind of acquisition, typically no more than $1 billion to $2 billion in value, is expected to heat up in the coming months as the big deals that marked the past few years’ LBO boom suffer from the credit crunch.
Operating a significant in-house LBO group marks a break with Citi’s previous approach. The bank has pitched itself to private equity firms as an unconflicted alternative to rivals like Morgan Stanley and Goldman, Sachs & Co., which is an active investor in big buyouts, sometimes to the chagrin of major LBO shops, like Blackstone Group and Kohlberg Kravis Roberts & Co., that pursue the same acquisition targets. That Metalmark was part of Morgan Stanley before being spun off in 2004 has only made Citi investment bankers more nervous about how Pandit’s move will be received by clients.
Citi did have a small buyout arm before the Metalmark acquisition, but it concentrated on tiny deals to avoid conflicts with big private equity clients.
