George S. May Business Blog

Why am I paying for Vikram Pandit’s new office?

Citigroup Inc. is planning to spend a cool $10 million, or so, on new offices for CEO Vikram Pandit and his lieutenants. This news comes as a bit of a surprise as Vikram Pandit promised that extravagant expenditures wouldn’t happen in months to come. Now this promise came after he was ripped by lawmakers for a proposed purchase of a new company jet in January, but nonetheless on January 11 Pandit was quoted as saying:

“I get the new reality and I’ll make sure Citi gets it as well.”

Affidavits filed with New York’s Department of Buildings show Citigroup expects to pay at least $3.2 million for basic construction such as wall removal, plumbing and fire safety. By the time architect’s fees and expenses such as furniture are added, the tally for the offices at the bank’s Park Avenue headquarters will be at least three times as high, according to a person familiar with the project. Citigroup said the project will help it save money over time.

The reason for the public disapproval of Citi’s expenditures is, of the biggest U.S. banks that received federal aid, only Citigroup has turned to the government three times for rescue.

“In this environment, it absolutely sends the wrong message,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, referring to the office renovations. “Timing in life is everything.”

In Vikram Pandit’s defense, the man has already slashed Citigroup’s dividend and sold units to free up capital. He said in November that he would cut 52,000 jobs, about 15 percent of the firm’s headcount as of Sept. 30. He has stood strong, thus far, in his decision to remodel, maintaining the assertion that the construction is part of a global space-saving initiative. The bank plans to reduce its office space worldwide by more than 10 million square feet to help save $15 billion over the next few years.

“Senior executives in our corporate headquarters are moving from two floors to smaller, simpler offices on a single floor,” the company’s statement said. “Based on estimates made when the project was initiated, we expect to generate savings in the next few years well in excess of the project costs.”

Citigroup began planning the renovation last June and obtained demolition permits in September, before the bank received any bailout funds, said a person briefed on the process.

Still quite a few lawmakers are not happy with the decision, to say the least.

“Maybe there’s some rational argument” for the remodeling, said Senator Robert Menendez, a New Jersey Democrat and a member of the Senate Banking Committee. “But I think our friends in the banking and financial universe have to understand that they have to stop living in an alternate parallel reality.” Given the nation’s economic challenges, “people simply don’t understand those types of expenditures,” he said.

With all the noise that has come from AIG and Merrill Lynch mismanaging relief dollars, it seems that the American people are less likely to trust big corporate executives to do act sensibly in that regard; and rightfully so. But, if Vikram Pandit can provide a clear cut plan on how this move will save company dollars down the line, then there is, obviously, no reason to give the executives of Citi a hard time.  As long as companies receiving funds remain transparent in regard to how they distribute those dollars, then further related issues should stay minimal.

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