Can anyone run Citigroup? (page 2.)

In the main tent, the Prince-Willumstad pairing seemed for a while to work. But eventually, Willumstad says, he got fed up with Prince, judging him poor at both partnering and managing. Willumstad left in mid-2005, creating a gaping hole that cried out to be filled. Prince, though, was inclined to fly solo, without a chief operating officer.

Citi's board (whose members include Richard Parsons, chairman of Time Warner, parent of Fortune's publisher) has often been accused of being, at best, somnolent. And at this critical juncture in Citi's history, with the executive suite halved, the board - of which Weill was still chairman - chose not to name another chief operating officer. As a moment of dereliction, that was a classic. (Citi says that in 2005, the board decided that having all businesses report directly to the CEO would streamline the organization.)

It was not until nearly a year and a half later, in late 2006, that Prince appointed his longtime colleague Robert Druskin to the operating job, and even then Druskin was supposed to focus primarily on cutting the expenses that had shot skyward soon after Willumstad left. Prince meanwhile moved unknowingly toward his downfall in what history will call the subprime mortgage crisis or perhaps simply the 2007 to (fill-in-the-year) credit crisis.

The reasons for Citi's debacle have been cataloged in the press. Like many of its competitors, the company drank the Kool-Aid of subprimes. It was forced late in 2007 to take huge write-offs on $43 billion of collateralized debt obligations (CDOs) formed principally from those mortgages. Considering Citi's size - it has a $2 trillion balance sheet - $43 billion is little more than a rounding error. But that fact became central to the problem: This apparently harmless position, some of it floating off balance sheet, got nearly zero notice in Citi's trading and markets division, until suddenly it emerged as a threat of shocking proportions. The $18 billion of CDO write-offs that were ultimately required crushed 2007 profits, reducing them to $3.6 billion - by far the lowest annual total since the merger in 1998.

In the melee, Prince resigned, meeting the standard he himself had written into Citi's four-year-old corporate creed: "Accept accountability for our failures." Prince was also surely exhausted by the unending criticism he'd received, more than a little coming from his onetime close friend Sandy Weill. The two men don't talk today, and Weill said to Fortune in March, "I get an F for succession planning."

With Prince's abrupt departure, Citi's board of directors was forced to energize itself and hastily look for a replacement. Its search committee was chaired by Parsons and included lead director Alain Belda, CEO of Alcoa; Rubin; and former Ford Foundation head Franklin Thomas. The ideal leader for Citi would have been a banker equipped with both consumer and corporate experience, but few such switch hitters exist. Inside candidates were also scarce, because many possibilities had either been fired by Prince or (like Willumstad) had quit. The survivors, of course, included Rubin, but he had left the job of Secretary of the Treasury in 1999 unalterably sure that severe financial crises would periodically grip the world - good prediction! - and vowing not to be a financial CEO when one hit. So that nixed him.

Looking outside Citi, the board's search committee elected not to call Jamie Dimon, CEO of J.P. Morgan Chase and a celebrated departee from Citi in 1998. Other stars like American Express's Kenneth Chenault and Wells Fargo's Richard Kovacevich didn't care to play. A willing candidate who stayed in the competition down to the end, though, was Michael Neal, a General Electric vice chairman with broad - if not terribly Citi-related- financial experience.

A particularly interesting candidate was Bob Willumstad, who was initially surprised to be called and then determined to express a strong opinion to the search committee. Pulling out charts, Willumstad argued that Citi's consumer and corporate businesses did little for each other. "The stock market," he remarked, "has been saying for years that it doesn't like Citi's business model. If you were interested in me for this job, you would have to tell me you would seriously consider breaking this company up." Willumstad says he thinks the committee was shocked, and he obviously didn't get the job.

The man who did, Pandit, is known most of all for his brains and analytical talents. People who have worked with him appear universally to admire his thought processes, calling him "very smart" to "brilliant." Sam Palmisano, CEO of IBM, says he's often leaned on Pandit for strategic advice. "Vikram sees the big picture," Palmisano says. "As you crawl through all the data, he has a wonderful way of synthesizing it to get to the right conclusion."

But the Pandit profile doesn't by any means fit this high-powered job perfectly. Pre-Citi, Pandit never ran anything bigger than Morgan Stanley's 8,000-person institutional clients group, and he comes across as more of a technocrat than an inspirational leader. Assessing Pandit's chances of making Citi sing, one Wall Street CEO says no one can possibly know what will happen. Citi's prospects, he says mixed-metaphorically, are "a crapshoot, a Hail Mary pass."

A more nuanced opinion comes from consultant Ram Charan (a frequent Fortune contributor), who knows Citi well because he worked with both Reed and Weill. He suspects Pandit's qualifications are particularly suited for this moment. "At companies that go through crises," Charan says, "it is paramount that the leaders have a feel and domain expertise in the crisis area." In this case, the "domain" is trading and markets. "You need a human being who can ask the right question with confidence," Charan adds. Once the crisis is in hand, he says, the CEO can turn his full attention to solutions for the entire organization.

Pandit hardly seems to be postponing any solutions. Though he appears to analyze everything diligently, and though he insists that his schedule include time to think (how refreshing!), he has behaved like a man in a hurry. He has raced around the world conducting 50 intense business reviews and concurrently orchestrated a never-ending number of announcements of operations to be streamlined (mortgages, for example); senior executives to come aboard (top talent is the goal); and assets to be manfully put on Citi's balance sheet ($59 billion of the special investment vehicles - called SIVs - that were held off balance sheet before Pandit took over).

Asked to set aside that action plan to discuss what he's come to think about Citi's business model, Pandit demurred. For context, he wanted first to describe the three things that most needed to be done when he took over on Dec. 11. Pandit then launched himself into bullet points, accompanied by brief elaboration, which we shall add to. Listening to the points, delivered in Pandit's highly organized way, this writer suspected that the recitation would be repeated many times in coming months, perhaps starting at Citi's annual meeting on April 22.

The first imperative, Pandit says, was raising capital. Casting its nets mostly in the Middle East and Asia, but also getting a symbolically important investment from Sandy Weill, Citi added a bit more than $30 billion in capital.

NEXT: Can anyone run Citigroup? (page 3.)

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