One of the great and tragically misunderstood virtues of capitalism is Creative Destruction. Joseph Schumpeter and others famously pointed out that, perhaps perversely, one of the real measures of dynamism in an economy is the rate of failure. Firm failure (and, the symbiotically related measure “ease of entry”) is important for rejiggering the status quo and setting the stage for testing new ideas, structures, and, most importantly, people.
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The Next Head of Citibank? Vikram Pandit |
A longtime banking analyst said late last night that Citigroup may be forced to cut its dividend or sell assets to stave off what she said was a $30 billion capital shortfall, moves that could pull down its shareholder returns for several years.
…”We believe the stock will be under significant pressure and could trade in the low $30s,” she wrote. That would be as much as a 28 percent decline from yesterday’s $41.90 closing price for Citigroup shares.
If correct, the findings could be yet another blow to Citigroup’s chairman and chief executive, Charles O. Prince III, who has endured a barrage of criticism in the last few years for his failure to control costs and improve results.
If Prince is forced out, as Wall Street odds makers strongly believe, one of the top internal candidates for replacing Prince will be superstar Investment Banker and minor legend on the Street – Vikram Pandit.
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p> The Dow Jones Financial Newswire had a fantastic profile of Pandit last week –
…When Vikram Pandit resigned as head of institutional securities at Morgan Stanley in March 2005 at the height of the coup to remove then chief executive Philip Purcell, his colleagues gave him a standing ovation as he left the trading floor for the last time.
…Described by colleagues as a “self-effacing derivatives wizard”, Pandit is perhaps an unlikely candidate to emerge as a successor to Prince at the world’s biggest bank, as analysts have predicted. He is the epitome of a new breed of product specialists with an encyclopaedic knowledge of risk, similar to former Merrill Lynch fixed-income head Dow Kim; individuals who gained promotion through technical brilliance rather than people skills.
One former colleague at Morgan Stanley said: “Vikram is extremely bright and understands risk better than almost anyone. He’s on top of the numbers and able to understand the complexities of every financial instrument. He’s not a relationship banker but make no mistake, he’s a star.”
…”He’s one of the fastest decision-makers I’ve run into. He’s not afraid to pull the trigger. He’s extremely decisive and once it’s set, he knows how to put it into action.”
Pandit came into Citigroup via one of the more over the top hedge fund transactions of 2007 – the zero-to-$800M in 12 months ride of Old Lane Capital –
Vikram Pandit and his two co-founders of US hedge fund Old Lane are understood to have made one of the quickest fortunes in hedge fund history after Citigroup last week agreed to buy their business for $800m (€600m), less than a year after it raised its first fund.
Pandit, Guru Ramakrishnan and John Havens are understood to be sharing the bulk of the purchase price between them.
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p>The $800M price for a fund of that size was a significant premium over comparable funds driven in large part by talent acquisition. In otherwords, they paid so much because they wanted the boyz at the top, not just the business.
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p>Pandit’s terse Wikipedia entry traces his humble beginnings. A Mumbaiker born in 1957, Pandit –
…received an MS degree in 1977 and a BS degree in electrical engineering in 1976 from Columbia. He also earned a PhD in Finance from Columbia University in 1986.
….He was native of Nagpur and Mumbai and born in middle class Deshastha family. The Pandit family from Dhantoli, Nagpur.
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p>My commentary? Regardless of how the Prince vs. Pandit drama pans out, the whole thing is cool as hell. As I’ve noted in the past, it’s become common to notice desi’s in entrepreneurial, tech, and medicine roles but their large footprint in the “mahogany panelled offices of American Capitalism” is both tremendous and often overlooked.
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p>Socially, many SM’ers are quick to lambast the deep veins of racism in American society, yet it’s hard to find a venue more stereotypically history-bound, blue-blooded, and privileged-connection oriented (and Republican) than Wall Street. And at the same time it’s becoming thoroughly common for a “self-effacing” Desi to rise its ranks while receiving a “standing ovation” from just those sorts of folks. Just last week, the subprime shakeup also claimed the job of the first Black CEO of a Wall Street blue chip firm – Stan O’Neal of Merrill Lynch. In the business press, however, there was little mention of his race; just the way it should be.
The implication is that Wall Street presents a great test case of a proof that helped Gary Becker win his Nobel prize – the more dynamism (e.g. creative destruction) in a market, the less room for discrimination. Consequently, for most folks, if you *really* want to do your part to combat racism, perhaps the most important thing is to simply go forth, be productive, and quit blogging in the middle of the workday 
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The stereotype is just not true. I’ve served my time (and continue to do so) in the investment banking industry and its just about the least history minded, blue blooded, connection oriented section of the business world. It was the first place in American business where Jews played a leading role (Lazard Freres, Goldman Sachs, Lehman Brothers, Salomon Brothers) and all of the old-line blue blood WASP Wall Street firms are either dead (Dillon Read), marginalized (Brown Brothers Harriman) or changed beyond recognition (Morgan Stanley, First Boston).
The underlying rationale isn’t so hard to understand. Its harder to use racism or privilege as a tool, when its so easy to keep score. Corporate America has a much thicker glass ceiling than Wall Street though – I see this a lot with my corporate clients, where there are a lot of brilliant minorities and women at the manager or VP very few CXOs, and its a much clubbier world.
Not so sure about never a mention of Stan’s race, Vinod. Many a time in the Merill coverage over the past weekend (when the rumors started flying last Friday), did they mention that O’Neil was the first black CEO of a Wall Street firm. The fact that they devoted any line to it (more words, more likely you won’t make deadline), I would have to say if it’s of some importance. Take the WSJ cover on Friday, I believe…
On a related note, my brother is actually part of an M&A group of a very prestigious bank. His first week there the assistant kept sending his mail to IT. She had never seen a desi in the most formidable group of the firm, so she assumed it was someone in IT. I kid you not. My brother and I laughed about it, but really, it’s no laughing matter. I think desis can rise to the top, but they, like many other minorities, have to bring their A-game starting at Day One. But honestly, in this type of competitive environment, it’s probably better that way.
With regards to Stan O’Neal, financial blogs have long joked about him being an affirmative action CEO, don’t forget he was the one who forced out Arshad when he had taken over 7 years back. People of Indian origin are all over the place in finance, one of the brightest traders under 40 is Ashok Varadhan who is rumored to have made a $25 million bonus last year and is in the partnership pool at Goldman. Hari, BBH is not marginalized, it is one of the smartest mid level firms on the street, it is consciously decided to stay away from riskier businesses and is pretty huge in the custody business. As it is still a partnership and publicity averse people don’t hear too much about it. Believe me it is highly profitable and with deep connections.
I absolutely don’t agree that desis are marginalized in Investment banking. There are many guys who are in very senior level positions which have nothing to do with technology, look at teams at Blackstone, the head of Americas for loan products at BNP, prime brokerage MD at Morgan Stanley and these are all youn guys. There was a guy at MS who used to run their emerging markets business and since become the head of Morgan Stanley Investment Management in India. If anything I feel there is an over representation of desis on Wall Street.
All correct. But BBH was once a major bracket firm, probably as significant an investment bank as Goldman Sachs in the 1950s. Since that time, they have chosen to focus on a few businesses and have done very well at them, while certain other firms have grown to remain in that major/bulge bracket. That does not mean they are not a marginal player in the investment banking world. Even if they chose to compete for meaningful investment banking business, which they do not, they do not have the human or financial capital to do so. This is not a knock on the firm – just a comment that they were once a major player, now they are a niche player.
Surprising – every one of our competitors that I can think has a couple desi senior bankers in M&A. Assistants can often be more snooty than the bankers. I see that all the time.
If anything I feel there is an over representation of desis on Wall Street.
I agree. And also in professorships at elite business schools.
Hari,
Agreed about the niche part, I think the defining part for GS was 1999 after they went public and surprisingly at BBH that option is not discussed. Absolutely correct about the assitants.
I recall a deal I worked on recently where four out of the six senior bankers were of Indian / Pakistani origin, as was one of the senior M&A lawyers. And this was a Midwestern industrials transaction.
just to be clear (and my verbiage in the main post may be lacking); what I was trying to argue was –
1) desi’s in Banking are likely overrepresented (I’ve got a lot of friends in the space…) – e.g. they have a huge “footprint” in the industry 2) BUT, top desi bankers don’t appear in the popular press and likely aren’t as big a part of SM’s coverage as techie’s, docs, and other types of businessmen…
The “over-representation” from the MBA classes also seems to carry over to the blue-blood management consultants as well. I have heard of 100% desi-staffed M&A gigs.
Vinod,
I for one was agreeing with you, and the responses to pre-empt the barrage of comments that can follow claiming other wise. I agree with you about the low profile of desi bankers but in financial press a lot of analysts covering a variety of industries are desis now. There is also Vikram Gandhi at CSFB and I think he is the global head of their FI group.
Vinod, nice post, and I agree with you overall. But if the desi footprint on Mahogany Row really was that large, it would be unlikely to be overlooked. For the most part desis in corporate America still are viewed as techs, and then maybe as tech managers and small tech entrepreneurs. Everything else is viewed as an exception, which it largely is.
Yep, JPM, Morgan Stanley… lots of desis on the floor. Not too sure about the IB division but in Capital Markets, desis have a strong presence and are highly regarded as a group. Lehman apparently has desis in many high positions. It was the first company that really saw the benefits of hiring straight from IIMs. The school with the most alumni in some of these firms is IIT (although it takes the numbers from all IIT campuses together to beat the numbers of Wharton or, Harvard etc).
Also want to remark that Wall St. seems much better than most corporate American when it comes to being an equal playing field. i.e., in many techie jobs on the street, there is no white entitlement, or even American entitlement. Merit (or schmmozing, or whatever) seems to be the way up. As Hari mentioned, this must be because of being able to measure contribution easily. It won’t be long before we see more CEOs as well. Stan O’Neal’s race was mentioned a lot in the press coverage, yes, but it was in no way tied to what happened at ML. Simply that he happens to be the most high profile black person on the “street”.
Although after Stan’s departure there are only 5 African American CEO in Fortune 500 companies. Chachaji, I think the recognition is starting to come, Ashok Varadhan is very well known and so was his brother Gopal who unfortunately passed away in the trade centers, so was Arshad and Dinakar Singh who was at Goldman and since started his own fund.
That’s true, but bankers don’t get a lot of popular press outside of NYC anyway, and I don’t think there’s broad based popular interest in M&A or derivatives, the way there is in medicine or technology.
I thought you and others might appreciate this article that ran a few years ago in New York Magazine.
http://nymag.com/nymetro/news/bizfinance/biz/features/6052/
Ironically, since this article was published, Pandit, Zakaria, Ogunlesi and Meguid all left the firms that they effectively ran, though the new generation is rising fast.
Vinod,
Nice post. Totally agree with >>top desi bankers …aren’t as big a part of SM’s coverage as techie’s, docs, and other types of businessmen
kurma:
I’ve a bit of a problem with this statement (maybe you meant something else), but one of my pet peeves is when desis are regarded as a group, since we are one of the most individualistic people on the face of this earth.
M. Nam
🙂 Yes, M. Nam. That’s what I meant. I’m not saying it’s a good thing, though. Sure, we’re individualistic. But it’s not my view that we are a bloc. Just reporting what other people seem to think. The stereotype exists (automatic assumption of smartness and math/tech competence) and is quite irritating. But I think a +VE stereotype is slightly (or a lot, I don’t know) better than a negative one.
Nice post !! As usual.
I for one will only considere Desis to have “arrived” in finance when there is a Desi Kirk Kerkorian and Desi Carl Icahn
pandit is also a trustee of [if i am not wrong, the only south asian trustee of an ivy league school]columbia university and the trinity school in manhattan.
narayana murthy is a trustee of cornell, and the tuck business school (he’s also affiliated with wharton in some way).
As usual Vinod another interesting post. And I agree with Hari – it’s in performance based areas like IB or R&D where results matter more than ethnicity or cooler smalltalk. However Wall Street and Bell Labs are not representative of the rest of the economy where a very real culture of discrimination does exist – whether you’re talking abotu America or Canada. I was just speaking to a friend of mine today who is doing her MBA and in a recent HR class she was shocked to see how racially the lines were drawn during a hiring simulation where “mainstream” students were more likely to choose a particular candidate for their ability to talk about last night’s hockey game than their work history or education.
Who says there aren’t Desis being recongnized for their financial genius mind? j/k
I first read about Vikram Pandit in The Accidental Investment Banker, Jonathan Knee’s ripping, gripping tale about Goldman Sachs upto and just past the dot com bust. Certainly that is no polite world, never mind blue-blooded, and surviving in that milieu. no matter what your race is, takes nerves of steel and stage presence as well, even if it’s a quiet presence.
Griping about racism mid-afternoon, OTOH, is a completely separate activity, and even a worthwhile pastime– someone’s gotta do it, get the word out, object out loud, put practitioners of racism on notice. So, as far as that goes, Vinod, I would say that some people who are suitably talented and positioned should indeed brush off racism along with more generic bullying and get on with what they’re doing, this being a rare skill in itself, and others should make a concerted effort to expose racism by writing and talking about it extensively.
just to join the masses in the comment-space, but it is really true that Wall Street is perhaps the most egalitarian and meritocratic system they have around here. the “stereotypical” image of a “history-bound, blue-blooded, and privileged-connection oriented” is just that – a stereotype that has very little basis in reality. Those words more appropriately describe politics in this country… Wall street, on the other hand, is one of the few places in America where being brown gives you a leg up, because of how successful other desis have been.
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It seems he might not get it.
what is he doing for charity?
There would be no desi I-bankers if there were no desi entrepreneurs starting companies that needed financing. Corporate finance isn’t rocket science, being able to progress to the partner track is about your ability to generate business for the firm. Without the real mavericks, i.e. desi CEOs in Silicon Valley & Boston, desi I-bankers would not have had the social capital necessary to generate business and progress. Before the late 90s upsurge of desi entrepreneurship they hired just enough Indians & Asians to avoid lawsuits. Now they “must” employ Indian bankers to get good deal flow
Nonsense – ask Vikram Gandhi or Kehtan Mehta or Dhiren Shah or Bayo Ogunlesi or any prominent minority banker how many of their clients are of the same origin. The answer could range from zero to a miniscule percentage. Similarly, when desi tech entrepreneurs (and there are very very few who have started companies large enough to be covered by major bracket banks) need financing, they don’t go out seeking desi bankers. There’s no business model covering companies owned or run by brown people.
not citibank. citigroup. this is sandy weil’s firm, not john reeds. when sandy bought sollie and merged it w/ smith barney, he wisely disbanded their high-flying proprietory trading biz (mostly arbitrage bond trader who went on the create LTCM, the giant hedge fund “bailed out’ by the fed lest the global financial markets collapse…actually the founding of ltcm happenned a few yrs earlier as solie was falling apart b/f buffet unloaded it on sandy)
sandy knew trading was risky (prefferring ge-like steady earnings) and wanted citi to be traditional brokers. charles and stan were seduced by the hedge fund biz, especially the goldman model, and got their ass bit.
this is a problem for citi, and probably for pandit. essentially citi has been spending a lot of $$ to fund acquistions that have not resulted in a rise in earnings, rocking its tangible equity to assets ratio.
this is like dan rather’s gwb Texas guard doc story. false but true. i’m not sure is desi ibankers have benefited from desi entrepreneurs but sales is cultural, nonetheless. blacks are overrepresented in muni bond underwriting b/c their clients are fellow blacks who have power within city governments. every major ibank has a Chinese banker to deal with, well china.
but off the top of my head it seams that desi bankers have made their name outside of traditional relationship banking (except for perhaps retail) in such feilds as arbitrage, quant, hedge funds, and venture capital.
i think traditional desi ibankers have had a mostly non-desi clints, though your underlying truth is still applicable in general.
its great to be an ethnic minority in sales (in the US)
my point in # 30 is that sandy acquired assets not talent: latin american banks with solid loans, insurance companies, brokers w/ many assets under management, citibank itself. even when he purchased a firm with purely intellectual capital (salomon) he disbanded it and kept its brand name. prince has gone in the opposite direction, acquiring hedge funds and raising a huge private equity fund at the top of the market.
this is not to say the intellectual capital biz model doesn’t work. goldman has done it well, and i have a lot of friends who were hired there just b/c they were talented, and they found a job for them after the fact. but citi is not goldman, it’s a behometh with a different culture, comprised of very different businesses that often have little synergies and very little in common culturally. what does a mortgage salesman have in common with an m&a guy? goldman is boutiquish, cliquish, its like being at stanford or yale
either way can work. its the artform of business…there are are no rules.
Lehman has been a major recruiter at the IIM’s (A/B/C) for several years. By and large it has been a positive experience. Not often for IB – quite a few into Research and the occasional trader.
I am a desi at a bulge bracket investment bank. And Desis are not over represented at all. Compared to the percentage who are in the educated bracket (in London and in New York) Typically on a trading floor 2-5% of faces might be brown, most of them would be amongst the junior levels. at the Senior level you do have people, but the deluge is just starting. And dont forget Anshu Jain the head of Global Markets in Deustche bank (though head quartered in London, I figure not many SM’ers are in London) who is paid more than the CEO.
though you may see Brown faces now, no where it is close to the 16% of the world that we are, and not to mention the number of desis with colleg degrees in any of these financial centers
I agree with Vinod that an individual performing well at the highest level can and does make a difference to those who come after him. Here are a few thoughts about S. Chandrasekhar (1910-95), the distinguished astro-physicist, who after some years at Cambridge University, came to the University of Chicago in 1937, an association which lasted nearly 60 years. He lived an austere, totally dedicated life, working 10-plus-hour days seven days a week, and contributing definitively to six or seven areas of astro-physics. “Chandra” is of course named for him. His wife has established research fellowships in his memory at the University of Chicago. Chandrasekhar’s intellectual predecessor was Srinivasa Ramanujan (1887-1920), who, with the far-sighted encouragement of Professor G.H. Hardy of Cambridge, did brilliantly original work in Mathematics. C.P. Snow said that when in Ramanujan’s company Hardy never forgot that he was in the presence of genius. Nehru, who was two years younger than Ramanujan but had preceded him at Cambridge, paid tribute to his example in “The Discovery of India.”
Manju,
I agree with you about Citi’s balance sheet, the assets have grown way faster than income that is why the ratios have taken substantial hit. BTW Prince is resigning tomorrow and Pandit is in the running according to NY times.
Nirav, in America for sure Indians are more than their relative percentage in banking.
Guess people will take up in some time and read this: http://www.dawn.com/2007/11/03/welcome.htm. What are the implications of the “second coup” as Dawn gently puts, for South Asia as a whole?
for those interested in race and class on wall st, this development goes back to the old salomon bros, a firm only known for bond trading, devoid of some traditional wall st divisons like m&a or private client. up until the late 80’s there was a certain subculture of traders on wall st, almost exclusively white ethnics (irish, italian, and jews), male, and often w/o a college education (never mind an mba). many of the top traders and subsequent ceos or chairmens work working class guys with no formal ed, lewis ranieri ant sollie, or ace greenberg at bear sterns.
they found their place in the rough and tumble world of trading (as opposed to corp finance). most of the guys who work on the floor of the nyse fit this bill, though its now a dying profession. trading back in the day was an instinctual profession, legend has it that ace greenburg hired bears now ceo james cayne after observing him play bridge. wannabe goldman traders would play a hand of poker in the interviews (according to the book “goldman sachs, the culture of success” by lisa someone).
no firm epitomized this subculure more than sollie, though it would be the firm to end it as well. one man, john merriweather, was responsible. under meriiweathers prop trading group, trading became more complex, more mathematical. he was the first, i believe, to really use computer modeling which allowed his group to create and trade more derivatives, including the very mortgage backed securites that have come back to haunt wall street (yeah wall st trader went mano-a-mano with poor immigrants lying about their credit and lost. heh.)
anyway, merriweather was among the first to realize the mba was worthless and hired kids with engineering and mathematics degrees, leading to a bizarre culture class of chinese nerds vs. irish high-school football playes on the trading floor. eventually bond trading got beyond men like lewis ranieri and the trading floor started to resemble an mit campus. other firms began to follow suit, and the best trader left to start hedge funds, but wall st was transformed…doors opened up for brown engineer types and closed for the working class whites.
there were other developments of course. michael milkins junk bonds changed ibanking forever, opening up finance to those who were left out. gates’ mircrosoft surpassing ibm as THE tech company was a warning sign that a new type of capitalist was on the horizon, one that liked to take on monopolies and creatively destroy. no longer did it matter that you went to boarding school with the son of the ford chairman in a world where companies will go from 0 to a billion in 16 months, like youtube.
but it all began with john meriiweather and his merry band of bond traders at salomon brothers.
I work on the trading floor in a Wall Street firm. Standing ovations are common enough ( mostly in January after bonus day ). Desi pride aside, I don’t think Pandit has the depth of background to get Citi out of it’s troubles. I don’t believe he has any knowledge about Consumer banking and managing an international financial conglomerate like Citi is probably not the smartest thing for him to do now. In short, on Wall Street, he is not considered a serious contender for the top job. Also, Manju’s points 29-32 — good.
It’s official: Pandit is the Citi CEO
http://www.citigroup.net/citigrouptoday/announcement/ann071212a.shtml
Dizzy,
This is great news, I really like Pandit and has been following his career since his days at Morgan.
Hi Hari, great name by the way straight from the Gita, have you come across many Indian investment bankers, and how difficult is it for Indians to move up in this world? I’ve heard that it’s 95% white guys.
As far as I banking is concerned I had met one of the earliest Ajit Hutheesingh, Nehru’s brother in law who was the Chairman of Schroeders and head of I banking. They probably considered a Maharajah a WASP