April 4 (Bloomberg) -- Citigroup Inc., the biggest lender to fail Federal Reserve stress tests last week, asked Eugene McQuade to cancel his retirement and lead the company’s submissions over the next year.
“Whatever the gaps between the Fed’s expectations and our performance, we need to close them,” Chief Executive Officer Michael Corbat said in a memo obtained by Bloomberg News. “Gene is fully empowered to do whatever is necessary.”
McQuade, 65, takes over less than a month after the board of directors praised Chief Financial Officer John Gerspach and Brian Leach, the bank’s head of risk, for work on last year’s stress tests. The Fed objected to Citigroup’s 2014 submission two weeks later, blocking plans to quintuple the dividend and repurchase as much as $6.4 billion of stock. The shares have tumbled 4.9 percent since then.
The new role for McQuade comes with the title of vice chairman, and he reports directly to Corbat, according to the New York-based firm. McQuade brings a strong understanding of regulatory matters, as well as internal controls, said Charles Peabody, an analyst at Portales Partners LLC, who rates the shares underperform.
“Citi has had a history of control problems and lack of accountability, and I still think that that culture needs to change,” Peabody said in an interview. Naming McQuade is “certainly a dilution of what Gerspach was responsible for, no question about that.”
Investors and analysts including Mike Mayo at CLSA Ltd. blamed Gerspach, 60, after the Fed flunked Citigroup on March 26. While the bank had enough capital to pass on quantitative grounds, the Fed cited the company for flaws in the quality of its submission and failing to fix previous mistakes. Five of the 30 banks tested were rejected, and Citigroup -- ranked third by assets in the U.S. -- was the only one among the nation’s Big Six that didn’t pass.
“Taken in isolation, each of the deficiencies would not have been deemed critical enough to warrant an objection, but when viewed together, they raise sufficient concerns regarding the overall reliability of Citigroup’s capital planning process,” the Fed said.
The Wall Street Journal reported McQuade’s appointment earlier. McQuade and Leach declined to comment, according to Mark Costiglio, a Citigroup spokesman.