What Won’t Happen Today at Citi's Annual Meeting

1. The board won't get fired.
2. CEO Vikram Pandit won't get fired.
3. Citi won't announce a workable turnaround plan.

That's 0 for 3, Cody Ransom numbers.

Let's look at the board's track record. Enron, booted out of Japan, all you can eat sub-prime, Chuck Prince, Vikram Pandit. In baseball, it takes three strikes to be out; for the Citi board it looks like five strikes (and counting) won't be enough. The irony in all this is that on paper board members have great experience - Armstrong at AT&T, Belda at Alcoa, Mulcahy at Xerox, the list goes on. But, and this is the big but of corporate governance, just slapping down your resume on the boardroom table does not make an effective director. Actions speak much louder than resumes, and it's hard to imagine the Citi board did what great boards do - ask the tough question, probe top management, spend the time to really understand the company's business, and not defer to the "superstars" on the board (read: Robert Rubin). I really hope the new directors about to be officially seated get the principle that spectacular resumes (former CEO of US Bancorp, etc.) are not enough.

As for Vikram Pandit, the jury is in. It was not his fault that Citi made as many gigantic blunders as they did (he only started as CEO in December 2007), but he has got to bear responsibility for Citi's inability to come up with a viable turnaround strategy. More to the point, I find it hard to believe that he is the most qualified person to be CEO of Citi. Remember how he got the job? His hedge fund was acquired by Citi, and with all due respect to my friends in the hedge fund business, that is not the best training ground for the job of CEO in a complex, struggling company. That the hedge fund imploded not long after Citi bought it only adds to the ignominy.

Which brings us to the problem of creating a new strategy to fix the bank. Q1 earnings were driven by accounting changes, rumors of big paydays driven by AIG's winding down of credit-default protection, and the simple beauty of borrowing at 0% and lending (or investing) at 4%-12%. That is not sustainable, especially in light of the quickly melting commercial real estate market. Navigating around these curve balls is not easy for any management team and board; for Citi's, I fear it's just about impossible.

Hey, isn't Treasury all about good corporate governance? What's good enough for GM's board is surely good enough for Citi's.

Banks Making Money?

Both Citi and Bank of America have now announced much-improved earnings for Q1 2009. Are we out of the woods yet? Unfortunately, no.

Today's BofA report notes that changes in fair market value accounting created a $2.2 billion gain from Merrill Lynch. While most observers understand that this is a one-time, non-recurring gain, let's make sure we all understand just where the "gain" came from. By essentially increasing the value of certain ML structured assets held on the books, BofA is artificially inflating assets that no one wants to buy ("toxic assets"). Although perfectly legal, this move is also perfectly delusional, because some day soon these assets will be written down to their fair value, and it won't be pretty. You can run, but you can't hide.

One other quick note: If the federal government let me borrow money at 0% interest, and then lend it out at 4-12% interest, even I could make a profit. And if a college professor can make money in banking in 2009, what should we expect from the highly-paid CEOs that populate corner offices? At least I'd have the humility not to claim these results were "a testament to the value and breadth of the franchise." (Yes, that's what Ken Lewis, CEO of BofA, said today.)