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Product Overview

In January 2008, Citi and Merrill Lynch are trying to steer their ships back to calm waters. The new CEOs, Vikram Pandit (Citi) and John Thain (Merrill), have been at the helm of their companies for less than three months. This case focuses on their steps to counteract the massive losses resulting from their firms' investments in subprime-mortgage structures. What actions have these leaders taken thus far and what actions should they consider going forward? See also "Warren E. Buffett, 2008" (UVA-F-1550).

Learning Objectives

• To examine the critical period in Citi’s and Merrill’s history concerning the subprime crisis • To showcase the leadership of the new CEOs, Vikram Pandit (Citi) and John Thain (Merrill) • To understand the problems that these companies face: losses arising from investments in subprime-mortgage structures that eroded the firms’ capital base • To understand the CEOs’ decisions regarding the capital infusion by sovereign funds and the dividend cut • To discuss sovereign funds as investors: who they are, what they are looking for, why they are investing now • To discuss the risk-management issues surrounding the losses • To discuss issues of transparency in financial reporting as exemplified by Citi’s decision to include SIVs (special investment vehicles) on its balance sheet, which were previously held off it • To discuss future decisions on management team, capital support (divestitures, other capital infusions, growth)