Citigroup (C) has been in the news recently and, unfortunately, few reports are painting the company in a favorable light.
The biggest news for Citigroup is the displeasure of stockholders regarding a board-of-directors recommended $15 million compensation package for CEO Vikram S. Pandit. Stockholders voted regarding this development and the results showed that a majority (55%) are not in favor of the enormous payment. This is the first time stockholders have actively rejected a compensation scheme. Other voices, like those of the company's employees, are also beginning to express deep dissatisfaction. If stockholders and employees band together, it's safe to assume that Citigroup's reputation and standing is far from stable.
While the vote that went through is not binding, it does serve as a remonstration for the CEO, who may need to change his tack if he wishes to keep the company's stockholders on board. It is rare for stockholders to vote on matters such as this. This is a clear indication that all is not well with the company. I expect that the stockholders of Citigroup will continue to assert their collective voice as time passes. If you add in their particular dissatisfaction with the company as a whole, you may have a large group of angry voices. This won't bode well for Citigroup moving forward.
Not only has Pandit been rebuked by his stockholders, but the financial institution was recently sued by one particularly dissatisfied shareholder. The accusations that the complainant leveled at the company are directly related to the oversized paycheck for Pandit. In total, various executives were paid over $54 million in bonuses. The complainant claims, simply, that this is not justified based on the bank's performance. In fact, the bank's profits dropped by 2% from previous years. This may have affected the outcome of the vote. The complainant said that the vote "has cast doubt on the board's decision-making process, as well as the accuracy and truthfulness of its public statements." The lawsuit aims to make Pandit and other executives pay damages to the bank. The complainant also hopes that the lawsuit will result in tighter internal controls within the company.
All this being said, the bank itself stated that the lawsuit will not stand. Citigroup has already moved to have the lawsuit dismissed altogether. Citigroup also recently stated that the results of the vote were serious and that any problems stockholders may have will be addressed soon. We will have to wait and see if the company takes that pledge seriously and addresses its problems.
In point of fact, although it's known that these "say on pay" lawsuits (where stockholders object to CEO salaries) are often dismissed, this is not always the case. We can expect more lawsuits against Citigroup to follow if this one is successful and if Citigroup decides to proceed with its proposed payment scheme. The way that Pandit chooses to respond to the situation will have a huge impact on public opinion regarding the company. If he responds appropriately, then further lawsuits may be avoided. The issue, while tempering the pride of certain men, may also have long-ranging effects on Citigroup's stock should serious future payouts be considered.
One particularly strange matter in the case is that Citigroup consulted with institutional investors about the package. These institutional investors openly expressed their concerns. Citigroup should not be surprised by the reaction of the stockholders, as it knew it was taking a risk with the proposed compensation amounts. These developments, combined with reports that Citigroup is at the top of the discontent charts, makes me uncertain about the integrity of the company.
Citigroup's competitors appear to be doing slightly better overall. Wells Fargo (WFC) may soon open a branch in India. However, it has not made the final decision as yet. If Wells Fargo does open this branch, it will be in a position to tap the huge trade volume potential that India offers. With over a billion people living in India, and an economy and manufacturing sector on the rise, there will be money flowing through for years to come. Generally speaking, I consider this to be a strategic move on the part of Wells Fargo that will benefit the company significantly. Surely investors in this bank must be pleased with its addressing of growth potential, instead of CEO salary growth.
U.S. Bancorp (USB) also has good news to report. The company plans to capitalize on a "once in a lifetime chance" to experience greater growth in mortgage operations than it ever thought possible. As one of the few banks that gained populist trust, and improved its credibility during the credit crisis, U.S. Bancorp is a safe bet moving forward. It will not have to contend with the bad press that Citigroup has gotten and, seemingly, will continue to get.
JPMorgan Chase (JPM), another firm whose reputation has been soured in the public's mind, has recently been in the news for legal reasons. However, unlike the situation Citigroup finds itself in, JPMorgan has come out on top of the game. The pension fund lawsuit that it was involved in was dismissed recently. The case was linked to the accusation that JPMorgan mismanaged funds from Lehman Brothers, even though the stability of that company was uncertain. The company later went bankrupt.
Lastly, Bank of America (BAC) has not been as lucky as some other banks. It currently faces a court challenge regarding a $20 million settlement that it recently made. The $20 million was paid to shareholders, but some shareholders voiced the opinion that the amount is not enough.
Citigroup finds itself in the middle of a banking industry that continues to harm its own reputation. In fact, it may be the worst perpetrator of the whole bunch, and the news of shareholder anger toward its CEO's pay only makes matters worse. For some time, the banking industry has profited while experiencing terrible press and mainstream maligning of specific companies. The question remains whether or not Citigroup can keep this trend going, or if the $15 million paycheck was simply the straw that broke the camel's back.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.