Davos celebrates failure on a global stage

Sometimes a single fact stands out amid all the clutter, offering a flash of insight and clarity.

Here is one of them: Citigroup chief executive Vikram Pandit is a co-chairman of the World Economic Forum’s annual meeting this week in Davos, Switzerland.

At first blush, the notion might seem almost a non-event. Upon further consideration, this looks like it can’t possibly be right. Then it turns out, much to our amazement, that the story is accurate, confirming once again that our world is raving mad. You really have to wonder why anyone outside of Citigroup would pick Pandit to lead anything.

This was the man at the helm of Citigroup when it blew itself up so spectacularly that it needed multiple taxpayer bailouts to stay afloat.

It’s stunning when you think about it: How does Pandit, who owes much of his fortune to the American public’s largess, wind up being showcased as a paragon of leadership and free enterprise, little more than a year after the US treasury finally sold the last of its Citigroup common stock?

And what message are the rest of us are supposed to take away from this? That his example is to be celebrated?

Maybe the distinction bestowed on Pandit should be of no surprise at all. Founded in 1971, the World Economic Forum describes itself as an international organisation of large corporations that is “committed to improving the state of the world” with “no political, partisan or national interests.” But it’s becoming hard not to suspect that the annual gathering in Davos has become a conclave for global elites to promote crony capitalism and state-backed enterprise, ensuring that national coffers remain available to be tapped for private gain.

Pandit joined Citigroup in 2007 after selling it his Old Lane Partners LP hedge fund, which the bank shut the following year. Pandit’s take from his share of the sale was $165 million (€125.3m), the last $80m of which he received in July.

In February 2008, two months into his job as chief executive, Pandit certified in Citigroup’s 2007 annual report that the company’s internal controls were effective. Eight days prior, the US Office of the Comptroller of the Currency had sent him a seven-page letter detailing all sorts of ways in which Citigroup’s controls were inadequate.

In November 2008, in spite of the company’s insistent refrain that it had “very strong capital,” Citigroup took a second federal bailout package. That boosted its proceeds from the Troubled Asset Relief Programme to $45 billion, plus $301bn of asset guarantees. Another rescue came in 2009 when the treasury department let Citigroup repay $25bn of its bailout money in common shares rather than cash.

Today, Citigroup says it has returned to profitability, although investors remain sceptical. At a recent price of $30.25 a share, down 90% since Pandit was named chief executive, Citigroup trades for about 50% of its common shareholder equity. In other words, the markets believe that about half of the $178bn book value on Citigroup’s balance sheet is imaginary. The company probably wouldn’t be standing were it not for its implicit guarantees from the US government.

Is this the right man for the World Economic Forum to pick as one of its co-chairmen for this year’s Davos extravaganza? Pandit’s bromides at a press conference this week were the sort of filler any college advertising major could have written.

“Banks have to serve clients, not serve themselves,” Pandit said. (Were they not serving clients before?) Or this: “It’s important for the financial system to acknowledge that there’s a great deal of anger that’s directed at it for the crisis, and trust has been broken,” he said. “We’ve got to start addressing that.” The protesters at Zuccotti Park had keener insights than this.

Or perhaps the problem here is me, and I’m looking at the situation the wrong way. For all we know, these little rough patches in the financial industry offered just the kind of hands-on experience the forum’s organisers were looking for in a leader, in which case they found their man.

Maybe if Citigroup blows up again someday, they could put Pandit in charge of the whole conference.

— Bloomberg