Vikram Pandit abruptly stepped down as CEO of Citigroup on Tuesday, shocking Wall Street, after steering the bank through the 2008 financial crisis and the choppy years that followed.

Pandit's replacement, effective immediately, is Michael Corbat, who had been CEO of Citigroup's Europe, Middle East and Africa division, the bank said.

Corbat has worked at Citi and its predecessors since he graduated from Harvard in 1983, it said.

Pandit, 55, will also relinquish his seat on Citi's board of directors. A second top executive also resigned as part of the shake-up: President and Chief Operating Officer John Havens, who also served as CEO of Citi's Institutional Client Group.

The move followed a clash with the company's board over strategy and performance at businesses, including its institutional clients group, The Wall Street Journal reported.

Shareholders also have objected to Pandit's massive pay packages. He received US$15 million in 2011.

The news came as a surprise, and Citigroup offered no explanation. There was no hint of the departure Monday, when the bank announced strong third-quarter earnings.

In an analyst call that lasted an hour and 40 minutes, and a shorter call with reporters, no one asked bank executives how long Pandit planned to stay, or whether there was a succession plan in place.

The strong quarter sent Citigroup's stock price to its highest level since early April.

unexpected break

Pandit's departure from the board is a clear indication that "this was a complete and unexpected break" between Pandit and Citi directors, said Chris Whalen, a bank analyst and senior managing director of Tangent Capital Partners in New York.

"This shows how dysfunctional this organisation is, to have this event unfold this way," Whalen said. "They should have told us yesterday, unless they didn't know."

Still, Whalen said he does not expect the changes to mark a shift in strategic direction for the bank.

"They needed new leadership to put a face on it," he said.

Pandit is credited with slimming the bank by selling businesses, removing it from government ownership after a bailout in 2008 and righting its balance sheet after billions in losses on bad mortgage investments made before he took the helm.

Today, Citi is the country's third-largest bank, with US$1.9 trillion in assets, according to the Federal Reserve. It trails only JPMorgan Chase, with US$2.3 trillion, and Bank of America, with US$2.1 trillion.

Pandit's massive pay packages have raised the ire of investors. And some in government believed the bank was too slow to address its problems as they emerged in the months before the crisis caught fire in September 2008.

Daniel Alpert, managing partner at the New York investment bank Westwood Capital LLC, said Pandit had done "pretty much all he can do to turn the bank around."

He said it will be hard for big banks to boost their share prices because of intense pressure from regulators to simplify their businesses.

"There is some meaning to quit while you're ahead," Alpert said, noting that it's harder for executives to win massive pay packages when a company's stock is flat-lining.

In April, Citigroup shareholders rejected the bank's proposed pay deals for executives, including Pandit. It was the first time shareholders dinged a Wall Street bank under a provision of the 2010 financial overhaul law that gives them a non-binding vote on executive pay.

Fifty-five per cent of the shareholders objected to deals including the US$15 million that Pandit received last year, in addition to US$10 million in retention pay. He had accepted a token US$1 in compensation in 2010. In 2008, Pandit's compensation package was valued at US$38.2 million.

Shareholders were frustrated in part because the stock had plunged 44 per cent in 2011, after adjusting for a reverse stock split. So far in 2012, it has regained about half of its 2011 losses.

The retention pay was to vest in 2013, as an incentive for Pandit to stay on as CEO. A bank spokeswoman said he would not receive any of that money.

In March, Citigroup surprised observers by failing its stress test, the Federal Reserve's annual check-up for banks. The Fed said Citi, unlike any of its peers, did not have enough capital to raise its stock dividend and still withstand a financial crisis worse than 2008.

Pandit said in a statement Tuesday that "now is the right time for someone else to take the helm at Citigroup" after the bank "emerged from the financial crisis as a strong institution."

Both Pandit and Corbat sent memos to Citi's 262,000 employees early Tuesday. Pandit did not say why he was leaving, but gave the impression that he felt he had completed a mission.

"There is nothing better than our third-quarter earnings announcement to demonstrate definitively that we have turned this company around," he wrote.

- AP