Since he took over at Citi, Vikram Pandit has shown he’s not afraid of taking bold decisions.
Below is a memo sent out to Citi employees on Tuesday, announcing a sea change in the bank’s mortgage business. What’s interesting are the implications for the whole originate and distribute model itself.
Originate and distribute looks to become a big issue this year. It’s going to come under scrutiny. Economists have been quick to point to the moral hazards the model throws up and politicians haven’t been far behind in seizing on it as a scapegoat for the subprime crisis.
Citi look like they’re making a very astute move in anticipating that - and are rolling their whole mortgage operations into one, from origination right through to securitisation. That’ll be a big change, meshing together two very different sides of Citi’s business.
It’s clever though. For the politicos it says Citi is taking seriously the flaws with originate and distribute - and is taking more responsibility for the quality of the MBS it pumps into the market. For investors it says Citi is getting a grip on its sprawling and wayward businesses.
To: All U.S. Employees
Cc: Senior Managers
From: Jamie Forese and Carl Levinson
Date: January 8, 2008
Re: U.S. Residential Mortgage Business
We are pleased to announce that Bill Beckmann will assume a new role, responsible for the creation of an end-to-end U.S. residential mortgage business that includes origination, servicing and capital markets securitization execution. Bill will continue to report to Carl Levinson, head of the U.S. Consumer Lending Group and add a joint reporting relationship to Jamie Forese, Co-CEO of Markets & Banking (CMB).
Aligning our existing U.S. mortgage businesses in this way will improve their overall effectiveness and allow us to better serve our existing clients while providing greater value to our shareholders. Importantly, this new structure will permit us to develop:
Uniform products, policies and practices for mortgage offerings; Portfolio and capital objectives focused on reducing mortgage exposure, especially in higher-risk segments; A single P&L for mortgage-related activities; Best practices with respect to pricing, risk management and return analytics; Consolidated and streamlined functions; and A more consistent face to our clients, regulators and other stakeholders. In this role, Bill will work closely with Jeff Perlowitz, the CMB head of Global Securitized Markets (GSM), to determine how to best integrate Citi Residential Lending’s origination and servicing functions and those in CitiMortgage. Mortgage origination activities of CitiFinancial, Citibank and Smith Barney branches will remain with those business entities.
This new structure for our mortgage businesses will allow Bill and Jeff to design the best model to ensure highly effective and coordinated Capital Markets analytics, risk management and execution across non-agency products, areas that will now report jointly to Jeff and Bill. All other GSM businesses will continue to report solely to Jeff.
Bill will also work closely with Corporate Treasury with respect to dimensioning overall portfolio, capital objectives and required return hurdles.
Please join us in wishing Bill well in his new role.
