It was only a year ago CitiGroup paid $800 million for Old Lane, the hedge fund of which the current Citigroup CEO Vikram S. Pandit (right) was a co-founder. If reports are to be believed, Old Lane is in trouble. Ten months after CitiGroup bought out the hedge fund (in an attempt to woo Pandit to its fold), the buzz is that almost all of the outside investors in Old Lane Partners are getting out. Old Lane, which had $4.5 billion in funds under management last year, is now down to just $1.5 billion.
Last month, Citi CFO Gary Crittenden said that clients would be permitted to redeem their investments in Old Lane. In a recent regulatory filing, the bank announced that most investors would exercise the opportunity to flee the underperforming hedge fund by July 31.
“In April 2008, substantially all unaffiliated investors had notified Old Lane of their intention to redeem,” Citi said in the filing. It’s not clear if Citi plans to shutter the fund. What it said all was that it is “evaluating alternatives for the restructuring of Old Lane.”

Mounting Losses
Apart from Citi’s amazingly dissapearing hedge fund, things are not fine for the U.S. banking giant in India, either. After posting a first quarter loss of $5.1 billion, CitiGroup said its Indian operations suffered higher credit costs — provisions against bad debt and write offs — and increased recovery costs. Having suffered the credit crisis pinch a little harder, the group decided to take some tough calls. CitiFinancial, its consumer finance non-banking finance company, has axed 400 people, the bank is looking to sell around $1 billion of its portfolio—a mix of commercial vehicle and construction equipment loans.
And perhaps for the first time in India, Citi has told buyers to absorb 300 staff in the units. These decisions were driven by a drop in margins after a sharp rise in delinquencies, primarily among subprime and low-ticket borrowers.
Citi is on a major cost cutting spree in India, these steps are in alignment Citigroup’s global efforts at substantially reducing costs according to plans drawn up by Vikram Pandit. Citibank, the commercial banking arm, has begun shifting its ATMs from prime locations to less expensive ones. To contain credit costs in the unsecured personal loan segment, CitiFinancial is shifting focus to customers with better credit profiles but lower yields.
It is also increasing its focus on fee-based income through insurance distribution. According to reports, Citigroup is also in the process of closing its CitiFinancial unit in Japan and scaling down operations of the consumer lending arm in Mexico. CitiFinancial Japan has already reduced its branches to 51 from 324 in 2006.

The D-day with the investors
According to media reports, India-born CitiGroup Chief Vikram Pandit is already facing criticism for slow decision making and for not having articulated his vision for the company. Pandit’s leadership approach will be out to test on the coming Friday in at a meeting with analysts and investors where he is expected to reject persistent calls to break up the company into smaller, more manageable businesses.
The media reports add that since he took over in December, the New York headquartered company has posted losses totalling $15 billion for the last two quarters, and is likely to suffer for the rest of the year, especially if the economy sinks into a recession. Its stock is down 26 percent.

Posted on 05/7/08, 7:03 PM
in: Private Equity
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