The turnaround specialist and outgoing Citigroup chairman on
malicious leakers, failed retirement attempts and why the megabank
model no longer works: 'We are history'
By Telis Demos
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 24, 2018).
Citigroup Inc. was nearly four years removed from its near-death
financial crisis experience when Michael O'Neill became its
chairman in 2012, but its problems were hardly behind it. The bank
had just failed the Federal Reserve's stress test, and billions of
dollars of toxic assets remained on the books.
Mr. O'Neill came to Citigroup without the baggage of having
himself led a bank into the crisis, thanks to an earlier attempt at
retirement. He arrived with a reputation as perhaps the country's
foremost turnaround banker, having first earned that status at
Continental Illinois National Bank And Trust -- at the time, the
biggest-ever U.S. bank failure -- then at a predecessor of Bank of
America Corp., and then as chief executive of Bank of Hawaii
Corp.
Within months of Mr. O'Neill taking over as chair, the board
replaced the bank's crisis-era chief executive, Vikram Pandit, with
Michael Corbat, who had been working closely with Mr. O'Neill on
the process of divesting unwanted assets.
In early November, Mr. O'Neill announced he was leaving
Citigroup at year's end, just after reaching the board's mandatory
retirement age of 72. The bank has doubled in value over his
tenure, virtually eliminated the "bad bank" that houses the assets
it deemed toxic, and hasn't failed a stress test in four years,
though it still lags peers such as JPMorgan Chase & Co. and
Bank of America in the crucial return on equity metric.
The Journal met with Mr. O'Neill -- a Princeton graduate who
served in the U.S. Marine Corps -- early in the morning at
Citigroup's new headquarters overlooking Manhattan's Tribeca
neighborhood. The interview has been edited and condensed for
readability.
WSJ: So what distinguishes a career as a turnaround banker from
just being a banker?
Mr. O'Neill: It started at Continental. I was just a normal sort
of banker. I, like many other people in the bank, was posted to
workout jobs. I was remarkably unsuccessful trying to get money
back from people who either didn't have it or wanted to keep it. I
ended up being the chief of staff for the chairman, and was
involved in lots of restructuring there. It was the first major
bank bankruptcy, I learned a lot along the way there. ... What's
nice about it is, typically you're brought in to resolve a problem
you didn't create. I think it's very tough to create a problem and
then work your way through it. Not impossible, but you spend a lot
of time saying, I was right at the time and I was unlucky. But
that's irrelevant at that point. So it's nice to have free run.
WSJ: You weren't at Citigroup prior to the crisis, a period for
which bank boards were blamed for letting management run amok. When
you became chairman, the perception was the opposite -- that you
were the person really running the bank, not the CEO. Was that
true?
Mr. O'Neill: No, it was not true, and I did not like the
perception. I'm a non-executive chairman, which means I don't make
day to day decisions. We made a lot of changes in the board, and
one of the things that boards do is make sure the management
running the strategic plan is appropriate for the time. But I never
felt like I was running the company.
WSJ: The abruptness of Mr. Pandit's resignation seemed to play
into the perception of Citi as a mess at the top. Are there things
you would have done differently?
Mr. O'Neill: Well, your characterization I think is fair. [Mr.
Pandit] and I had a conversation -- which he has said publicly,
I've not talked about this before -- in which he said it was time
to go. The job had gone from being strategic and firefighting to
essentially continuing to cleanse the bank of bad assets and to
begin executing the new strategy. That was not as much of interest
to him as what he had done prior. ... There were internal breaches
that effectively negated the discussions Vikram and I had. There
were leaks that were not always factual, generally not factual.
That were malicious. The way it played out was unfortunate. I think
well of him. He did a great job for us when he was here.
WSJ: You've proposed bank breakups before, notably when you were
considering returning to Bank of America in 2009. But that's not
the direction Citigroup has gone.
Mr. O'Neill: Excuse me. Eight hundred and fifty billion and 70
businesses [were divested]. Citi broke up. We did more than anyone
ever has done before, alright? We basically purged the bank of
troubled assets, or businesses that were not appropriate to the new
conditions. We have replaced $850 billion of very questionable
assets with $850 billion of what we think and hope are good assets.
I don't know how much more one needs to do to say that
restructuring has occurred. Now, have we kept two major lines of
business? Yeah. Consumer and institutional. To be sure, those are
bedrock businesses. But they're run very differently than they used
to be run.
WSJ: Other banks have recombined their chairman and chief
executive roles since the crisis, though against some vocal
shareholder objection. Why isn't Citigroup doing that?
Mr. O'Neill: I understand full well that the chairmanship is a
trophy for CEOs. I also believe that the non-executive position is
probably the right way to govern when you start from scratch. I
don't think the chairmanship should be given as a reward, or taken
away as a penalty. What I said to Mike [Corbat] is, you've done a
great job, you're well perceived by the board, we understand the
nature of American banking. Do you want to be considered for it?
Mike, in his usual way, very unemotional, basically concluded it
wasn't worth the calories we would have to burn to get it done. He
puts the company first.
WSJ: Do you believe the megabank model spawned by Citigroup --
spanning commercial, investment, and consumer banking -- still
fundamentally works?
Mr. O'Neill: Today I would not want to try and create Citigroup
or any of the other large banks. We are -- I won't say we are an
accident of history -- we are history. And unfortunately time
changes and the environment changes, and so today we've got other
challenges. We've got fintech, potential disruptors. We've got
cybersecurity. We've got all sorts of risks that we did not have
before. Do I believe that the basic model can be made to work? Yes.
But with constant mid-course corrections, and those need to happen
more frequently than they did in the past.
WSJ: You've spent a lot of time dealing with Washington issues,
from stress tests to anti-money laundering. Your successor as
chairman, John Dugan, is a former top regulator. Is the way that
the biggest banks and the government are entwined today a good deal
for banks?
Mr. O'Neill: Well it is what it is. To pretend it away, or to
try and make it go away, would be very, very difficult.
Occasionally those relationships are tense, less so today than they
were in the past. The AML job that we have been given to do is a
complex one. We spend $1.3 billion on that every year. We have not
declared victory. It is a complicated job, we are likely to spend
similar amounts going forward.I think it is appropriate to be
regulated, given the consequences when there are bank failures of
this size. I've got no complaints.
WSJ: What are the systemic or financial risks that your
successor will be dealing with?
Mr. O'Neill: People talk about the problems of leveraged lending
and the growth of collateralized lending obligations. Gosh, these
look like CDOs. When you look at who owns those assets, it really
isn't the banks. The difference is, in the dirty old days of 2005
and 2006, if-we-built-it-they-would-come was sort of the model.
Now, we basically react to client requests.Unregulated entities
could potentially threaten the financial system. The banks are
large intermediaries, and so will it come back to the banks?
Potentially. But it's not going to start here.
WSJ: You've spent a lot of time recruiting for Citigroup's
board, and on the diversity of the board. After you retire, about a
third of the directors will be women. How did you go about
that?
Mr. O'Neill: The way I started was to say, what are the risks
this company faces? When you start counting, there are a lot of
them. We needed, in my view, subject matter experts to face off
with management. People who did not need, like I did in business
school, remedial training. People who came to the job with specific
knowledge. So we didn't look for 12 or 15 Leonardo da Vinci's who
could turn their hand to everything, nor were we looking for people
who were our best clients and therefore supportive. We really went
out and said risk management is the principal thing we're looking
at. Every risk that I think we face we've gone out and specifically
looked for somebody who has those skills. We've got a balanced
board that is made up of subject-matter experts. We didn't say,
we'll check a box there.
WSJ: Are you retiring from Citigroup, or from the banking
industry entirely?
Mr. O'Neill: I failed retirement twice before. I'm determined to
pass it this time. After retiring from Bank of Hawaii, I moved to
the U.K. and enrolled in a graduate program in early modern
European history. I was about to begin work on my dissertation when
the call about possible Citi board duty came in late 2008. I
decided to take on the directorship, never really began work in
earnest on the dissertation, and moved back to the U.S. I'm giving
consideration to picking up the loose ends and restarting my
research after an interruption of ten years. We'll see?
(END) Dow Jones Newswires
November 24, 2018 02:47 ET (07:47 GMT)
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