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.
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.
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 (â‚¬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.
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.
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.
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.
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 .