Last updated: March 5, 2010 12:48 am

Pandit blames Citi’s woes on short selling

Vikram Pandit, chief executive of Citigroup, on Thursday blamed short selling rather than any self-inflicted weakness for the bank’s near-collapse in 2008 and thanked taxpayers for its government bail-out.

His comments, made in testimony to the bipartisan Congressional Oversight Panel, will be disputed by many analysts who identified fundamental problems with Citi’s balance sheet.

“There were a number of instances post the Lehman collapse ... where the markets were not really functioning in a rational way – they were frozen,” Mr Pandit said.

“There are ways that fear overtakes it and that’s the tool that short sellers need to make money.”

Short sellers borrow stock in a company, sell it and hope to buy it back at a lower price.

Mr Pandit added: “This was not a fundamental situation. It was not about the capital we had, not about the funding we had at that time.”

Christopher Whalen, managing director of Institutional Risk Analytics, took issue with Mr Pandit. “His bank has got the highest [credit] loss rate of any of the big four,” he said. “The shorts were just responding – the emperor had no clothes.”

Mr Pandit said Citi had repaid $20bn in bail-out funds, and paid $3bn in dividends to the government and $5.3bn in premiums on the asset guarantee programme.

The US holds a 27 per cent stake in Citi. “Citi owes a large debt of gratitude to American taxpayers,” Mr Pandit said.

Herb Allison, assistant Treasury secretary, told the panel: “We wish to dispose of those shares in the public market as soon as circumstances permit.’’

Citi’s stock has been trading above the $3.25 price at which the government acquired its stake, but at too small a premium for the Treasury to be confident of making a profit if it tried to sell its whole stake in the near future.

Mr Pandit vaunted the bank’s transformation and expressed confidence in its future stock price.

He said: “It’s not a secret that the government wants to sell. It’s not a secret that the stock price today reflects the fact that they are sellers.”

He attributed the need for two government bail-outs in 2008 to pressure on the share price stoked by short sellers.

Mr Pandit also backed the Obama administration’s “Volcker rule” that would ban banks from proprietary trading.

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