Surprise management reshuffle at Citi

Citi yesterday announced top management changes. After just four months on the job, Ned Kelly is being replaced as chief financial officer by John Gerspach, while Merrill Lynch banker Gene MacQuade is being brought in to head the North America franchise.

"Our relentless focus on executing against our strategic priorities at Citigroup continues," said Citi chief executive officer Vikram Pandit in a written statement announcing the appointments. "The senior management changes I am making today will further help in positioning our company for the future."

Kelly will become vice-chairman responsible for strategy and mergers and acquisitions. Pandit said Kelly will be working closely with him "to drive the execution of our strategic and operational priorities". Kelly is relatively new to Citi and was previously head of global banking and the private bank, as well as president and CEO of alternative investments for the institutional bank. Pandit hired Kelly in February 2008 from private equity firm The Carlyle Group where he had served just over six months as managing director. Kelly joined Carlyle from PNC Financial Services Group.

Gerspach will be the third CFO at Citi this calendar year, and with his appointment, this function is given back to a Citi veteran. Gerspach has been with the US bank for 19 years and was previously controller and chief accounting officer. He has experience across the consumer bank as well as markets and banking.

Bill Rhodes, who is currently chairman and CEO of Citibank North America, will step down and instead don the hat of senior vice-chairman of Citigroup and Citibank. The change is in line with Rhodes's "desire to reduce his level of operating responsibility in order to focus more of his time on our strategically vital international franchise", said Pandit.

Pandit is inducting an outsider, Gene McQuade, to replace Rhodes as CEO of Citibank North America. McQuade was previously vice-chairman of Merrill Lynch and president of Merrill Lynch Banks (US) and before that he was president and chief operating officer of Freddie Mac for three years. McQuade's past experience also includes stints at Bank of America and FleetBoston Financial Corporation.

Kelly, Gerspach, Rhodes and McQuade will all report directly to Pandit.

Meanwhile, former CFO Gary Crittenden, who is currently chairman of Citi Holdings, has resigned for personal reasons. Citi Holdings is the entity which was created to house all of Citi's non-core businesses for which alternatives, including disposals and closures, are being explored.

The changes in Citi's top ranks come only days after the bank announced a new senior management team for Asia-Pacific. On July 6, Citi appointed Shengman Zhang as chairman and Stephen Bird and Shirish Apte as joint CEOs of the region. The changes were precipitated by the surprise departure in June of Ajay Banga, who was sole CEO for Asia-Pacific. Banga left for a shot at the head honcho's job at MasterCard. Also on July 6, Citi announced that Bill Mills and Alberto Verme would become joint CEOs of Europe, the Middle East and Africa.

Following a recapitalisation proposal agreed between Citi and regulators in May, the US government will own approximately 34% of Citi. The bank announced recently that it has achieved the following milestones in its attempts to restructure: reduced expenses by 25% and headcount by almost 20% from the peak in the fourth quarter of 2007; reduced the balance sheet by 23% from the peak in the third quarter of 2007; completed 23 divestitures; announced deals for the Smith Barney wealth management business and Nikko Cordial Securities in Japan; and strategically focused Citi by separating the company into Citicorp and Citi Holdings

But Citi still has some way to go to get back on track and some specialists believe that Pandit's background in investment banking may not equip him to address the problems Citi is facing with its consumer portfolio. Media has reported that Sheila Bair, the chairman of the US Federal Deposit Insurance Corporation which insures depositors' money, has been demanding senior level changes at the bank and has speculated that yesterday's announcements may be intended to appease Bair.

Citi is scheduled to report second-quarter results on July 17.

By noon Thursday, Citi's share price had gained 1.15% to $2.65 on the New York Stock Exchange.