Bair Still Bearish on Citigroup

Sheila Bair has more harsh words for Citigroup (NYSE: C), even after its recovery from the worst of the financial crisis.

The former Federal Deposit Insurance Corp. chairman blasted Citi in her new book, saying the third-largest bank "should have been led to the pillory" during the financial crisis instead of surviving with the help of government bailouts. Four years later, the third-largest bank is consistently profitable — but Bair isn't convinced.

Citigroup is "slowly getting back to health … but it's not clear to me what their long term strategy is," Bair told American Banker editors in an interview last week.

"I don't know what their strategic direction is," she added. "I don't know what their growth prospects are — I'm not sure they have them."

Bair made similar comments during a video interview with American Banker that day, saying that a failure "would have frankly long-term been in Citi's interests, because then you could have recapitalized the clean bank that might have some growth and business prospects. Now, they're better off but they're still just nursing a bad balance sheet … and that's what a sick bank does, they nurse their balance sheet and slowly get back to health."

A Citigroup spokesman responded to Bair's comments via email: "Since Vikram Pandit became CEO, Citi has returned to the basics of banking with a clear strategy focused on individual and institutional banking and on serving clients who value our global network. We are a simpler, smaller and safer organization with strong momentum across our core businesses and a distinct ability to leverage our global footprint to capitalize on the trends shaping today's operating environment."

Pandit has increasingly relied on Citigroup's extensive international operations to help boost revenues and growth since the financial crisis. That strategy has had modest success so far; Citigroup's overall loan book grew 1% from a year earlier in the second quarter. The bank, which is due to report third-quarter results next week, has sold off or closed down many operations since the financial crisis but is still saddled with unwanted assets in its Citi Holdings "bad bank."

Citigroup was one of Bair's favorite targets in "Bull By the Horns," her recently-published memoir about the financial crisis and the debates over the Dodd-Frank Act. The book also repeatedly blasts Treasury Secretary Timothy Geithner, especially for advocating bailouts of the largest financial institutions.

Geithner is expected to leave after the coming election. In the interview, Bair declined to name the people she would like to see replace him, but said she wants his successor to be "a Treasury secretary who will deal with fiscal problems … I would actually like to keep the Treasury out of bank regulation."

Bair also cited a series of regrets about how the financial crisis had been handled: the public private investment partnerships (PPIPs), which never really got off the ground, would have been a promising way to bring in private capital to the financial system while cleaning up bank balance sheets. She also favors banning the so-called "revolving door" between regulators and financial institutions, and says policymakers should forbid examiners from eventually working for the institutions they oversee. In return, examiners should make more money, Bair said.

"Bank examiners — that should be a lifetime calling. Pay them more, give them more status," she said.