When Vikram Pandit became C.E.O. of Citigroup in December, he could have turned his office into a miniature version of the Guggenheim Museum if he had wanted to. Citi’s low-rise executive offices are strewn with objets d’art, the bounty from the companies around the world that Citigroup has conquered.

But there are no lavish decorations in Pandit’s office—no Andrew Wyeth watercolors, no Andy Warhol screen prints. Instead, there is a large sheet of graph paper, reverently framed. On it is a blizzard of numbers, words, and lines, bizarre and seemingly random, but with a kind of maniacal Rube Goldberg logic. It’s a fitting decoration, this being Citigroup—that staggering, lurching, insanely complex Rubik’s Cube of a financial-services company. And for Pandit, a kid from the sticks in provincial India who trained as an engineer and earned a Ph.D. in finance, the diagram is as resonant as a Norman Rockwell painting: It depicts the very first automatic-teller-machine system, inaugurated at Citibank in the early 1970s by his revered predecessor and current adviser John Reed. (View a slideshow of some of the executives who have shaped Citigroup.)

But while Pandit, with his master’s degree in electrical engineering, wins praise for understanding the guts of Citigroup’s myriad businesses, it’s not the scut work that is Citi’s problem at the moment. The bank’s issues now are more M.B.A. than Ph.D.: Has the company grown too big to make any sense? What’s the logic holding it together? What is the future of banking? Should Citigroup even survive intact?

And that, in turn, raises a much bigger question for Vikram Pandit: If dealmaker Sandy Weill was the C.E.O. for Citi’s era of empire building, and lawyer Chuck Prince helped dig the company out of a legal and regulatory mess, is Pandit, a shy academic who built a reputation on managing risk, the right person to reimagine the nation’s biggest financial-services company? Although Pandit’s understanding of the nuts and bolts of finance was key to his getting Citi’s top job—like every other bank in the world, Citi was terrified of its subprime exposure—the demands of the company have morphed and grown. Citi’s challenge is now more structural than operational, a management nightmare ill suited to a C.E.O. running his first-ever public company. “I don’t know who his godfather is,” says one former Citi banker. “He has the background to run a hedge fund, not a bank.”

The stock market has its doubts as well. Citi shares have declined consistently during Pandit’s tenure. While much of that slump can be blamed on dismal business in the financial sector in general, the company seems particularly vexed: Even a smaller-than-expected loss in the first quarter couldn’t boost the stock. Citi shares are down 42 percent on Pandit’s watch.

Citi’s quarterly loss, its third in a row, reflects a widely held view that the company remains uniquely exposed to an economy that is darkening, both in the U.S. and abroad. For instance, worsening consumer credit will hit Citigroup’s enormous credit-card business hard; its most recent quarterly results include a $2.5 billion charge to bulk up against coming credit losses.

Pandit and other senior Citi execs—including a handful who followed Pandit to the company from his previous post at Morgan Stanley—insist that they’re on course. Since almost 50 percent of Citi’s business is outside the U.S. and close to 35 percent is in emerging markets, Pandit says he is focusing on those areas for the company’s future growth. In fact, he talks more about growing in the future than winding his way out of Citi’s past, reciting his strategy in well-rehearsed cadences, reflecting a Pandit-era culture that favors neologisms like globality and clientcentricity.

“When you look at growth patterns, as the world goes from 6 billion to 9 billion people, the overwhelming majority of them are going to be in emerging markets,” Pandit says. “As Wayne Gretzky said, you need to ‘skate to where the puck is going to be, not to where it’s been.’”

Citigroup, of course, isn’t just a bank; it’s a multinational colossus, with 200 million customers in more than 100 countries. Its fingers are in every ­financial-services pie—banks, credit cards, brokerages, investment banking, and hedge funds. It is less a company than a collection of city-states. The glass-half-full way of looking at Citi is to see it as “a company that could not be created today at any price that would be rational,” as Michael Klein, Citi’s outgoing chairman of institutional clients, describes it.

The glass-half-empty view—the prevailing one on Wall Street—is that Citi is unmanageable in its current form. And it is this mess that Pandit must somehow unravel.

Managing Citi at a time like this requires many qualities, but optimism must surely count among them. In person, Pandit is cordial, supremely confident, and transparent up to a point, though he reverts to hostile-witness mode when asked about his private life, acting more like the hedge fund manager he recently was than the head of an immense publicly held company. One longtime associate tells me that he has known Pandit for many years but has never had dinner with him or been to his home, where Pandit lives with his wife and two adolescent children. Pandit recently bought a sprawling apartment on Central Park West that once belonged to the late actor Tony Randall.

Pandit is one of the most prominent Asians in corporate America, an emblematic Indian American success story. His hometown is not the cosmopolitan coastal city of Mumbai, as is commonly and incorrectly reported in the Western media, but Nagpur, a community farther east. It is a kind of Indian Middletown, located near the geographic center of the subcontinent. His father, now retired, was a pharmaceutical executive. His family name is of Hindu Kashmiri extraction—derived from the Hindi word for pundit. Nagpur is hardly the Paris of the subcontinent. It’s a market town of about 2.5 million people and an overnight train ride from Mumbai. During the British Raj, Nagpur became a center of the noncooperation movement against British rule. More recently, it has become a major manufacturing center.

Just like a provincial American city, Nagpur had little to offer its ambitious youth. A European diplomat based in New Delhi tells me that even when such towns grow richer, they often remain culturally stagnant. “There is no orchestra, no theater, no rock bands. Boredom is the chief trouble of India.”

But, he adds, Pandit didn’t stay long enough to experience much of that. “He got to America when he was 16 and stayed.”

That was 1973, when Pandit was admitted to Columbia University to study engineering—a typical, if precocious, career path for upwardly mobile young Indians at the time. He charged through college in three years. Pandit downplays his youthful brainpower, perhaps anxious to avoid being labeled a geek. He says, for instance, that he cracked the books during the summer because it was hard for foreign students to get summer jobs.

For Pandit, Columbia’s academic fare was far more palatable than a traditional Indian education. He gravitated toward economics and found the numbers-meets-strategy approach that would come to frame his career. “I found economics was an interesting juncture,” he says, “somewhere between the philosophical ways of looking at the world versus the precise engineering perspective. It was a way to blend both views, which I found fascinating.”

He received a master’s degree in engineering and then began studying finance. In 1982, he accepted a teaching position at Indiana University, in Bloomington, while completing his doctoral dissertation, “Asset Prices in a Heterogeneous Consumer Economy.” According to the abstract, his paper “examines the properties of asset prices in a multi-consumer, dynamic economy under uncertainty.” It sounds difficult, and it is, even by doctoral-dissertation standards. But it would define the playing field for Pandit once he arrived on Wall Street.

The Indiana campus was a far cry from the urban landscape of New York. “He was an excellent teacher, but being from India and New York City, he felt that maybe Bloomington was a little too small,” recalls Robert Klemkowski, who headed the business school’s finance department and hired Pandit.

While at Indiana, Pandit worked on a project for Morgan Stanley, and he was soon offered a job at the investment bank. Morgan Stanley was a partnership then and hired just 20 new M.B.A.’s each year. Its total head count, a mere 2,500, was a fraction of what it is today. Pandit began at the bottom of the ladder and moved steadily up the rungs, achieving a reputation as a cheerful, diligent, and uncomplaining worker bee. By the late 1980s, he was already performing impressively in Morgan Stanley’s capital markets division. It was a training ground for future leaders at the investment bank—former chairman Dick Fisher followed that career path as well—and Pandit was a steady, if not conspicuous, performer.

One former colleague remembers Pandit as “a thoughtful, conscientious, understated guy.” He was “easy to work with, and there was no standout thing about him,” the colleague says. “It’s kind of interesting that he’s gotten to this position because usually people who ­do that are much more self-promoting and political.”

But Pandit’s ascendance—he pitched himself as a numbers guy who could handle the M.B.A.-speak—was perfectly timed. Wall Street was in the process of becoming increasingly recondite and concept-driven. Pandit was instrumental in creating the first options on the Nikkei stock index in Japan and the XMI index, which tracked the Dow Jones industrial average. It was an ­innovative instrument, because at the time, investors couldn’t buy options outside the exchange.

Then, in the mid-to-late-’80s, new and sometimes esoteric hedging strategies became all the rage, some using Pandit’s three-year options and others using portfolio insurance, which would soon become notorious. The strategy employed computerized trading to sell stocks swiftly in market declines, a tactic later widely blamed for contributing to the market crash of October 1987.

Pandit sees parallels between the 1980s portfolio-insurance craze and the recent excesses involving mortgage securities. “People felt protected because they had portfolio insurance and the program trading behind it,” he says. “They felt they could take on more risk, and if the markets started going down, they could hedge out. But a lot of people took that same approach, and when the market started going down, everybody converged and the system was overloaded.” So, ironically, “what was right for an individual investor or company created a systemic issue for the entire market,” he says.

Similarly, Pandit notes, the big banks hedged the risk of their subprime loans by securitizing and selling mortgage-backed securities, thereby turning a risk-reduction strategy into a problem.

For helping flag portfolio insurance as a problem, Pandit was named a managing director of Morgan Stanley in 1989. A year later, he became head of equity capital markets and occasionally got his name in the trade press by creating new and improved financial instruments. By 2000, he was one of the top-earning executives at the firm, snagging a then-impressive bonus of $8.4 million and, in September, an even more impressive set of titles. He and Stephan Newhouse were named co-presidents and co-chief operating officers of Morgan’s institutional-securities group. John Havens, one of Pandit’s closest friends, replaced Pandit as head of worldwide institutional equities.

Not long afterward, Morgan Stanley’s internal politics boiled over, and Pandit and his protégés became involved in a boardroom putsch. They joined a group of top traders and bankers at the firm who sought to oust C.E.O. Philip Purcell, a former Dean Witter executive whom they saw as destroying the Morgan Stanley culture. The Dean Witter and Morgan Stanley sides of the company never jelled, and internally, Purcell was made out to be the reason.

The details of the fight were chronicled in dozens of articles and even a book—Patricia Beard’s Blue Blood and Mutiny. The outcome for Pandit was that his palace coup didn’t work, and by March 2005, he was gone. Havens stayed at Pandit’s side, quitting Morgan at the same time. A top risk-management official, Brian Leach, quit a few weeks later, and so did two other heavy-hitting bankers, Joseph Perella and Terry Meguid.

As Havens describes it, he and Pandit planned their future as a kind of intellectual exercise: “We got together and started thinking about our future, and because we had worked together for 20 years and had a level of respect for each other, we did a lot of this thinking and planning together at that point.”

As so often happens when like-minded Wall Streeters engage in intellectual exercises, a hedge fund emerged: “We had thought for quite some time that there were great opportunities in building a multi-strategy fund if you could go out and find a group of people who just were excellent at what they did,” Havens says. “So that’s what we ended up doing.”

While Purcell, their old boss, was slowly spit-roasted in the media, Pandit and Havens started their hedge fund, Old Lane Partners. From the start, it was overflowing with institutional capital and eventually had $4.5 billion under management.

Old Lane was a comfy perch for the corporate exiles—and the 20 percent share of profits and 2 percent management fee the fund charged investors certainly helped—but it was not a successful fund, despite Pandit’s reputation as an expert in managing money and sidestepping risk. Multi-strategy funds, by definition, can engage in any kind of investment strategy, and such funds are supposed to outperform less risky investments in good times and bad. Old Lane did not. From its inception in April 2006 to this past April, the fund was flat, according to a Citi official. In 2007, it returned just 2.8 percent after fees, half of what Standard & Poor’s 500-stock index returned with dividends reinvested.

But Old Lane’s failure managed not to tarnish Pandit himself; after all, hedge funds were suffering across the board, and Pandit’s credibility as a steady hand was not affected. So in early 2007, Citi C.E.O. Chuck Prince decided to buy Old Lane as a way of bringing Pandit and company onboard. Citigroup vice chairman Lewis Kaden, who was involved in the acquisition, says that buying Old Lane “was appealing to us because of Vikram’s reputation and experience” and because it would bring in the “half a dozen founding partners,” including Havens and Old Lane risk management chief Leach (who would assume the same post at Citi). As Kaden puts it, the purchase of Old Lane was grounded in “optionality”—the idea that “people with this background could play other roles at Citigroup over time” instead of simply running a $4.5 billion hedge fund.

The price Citi paid for Old Lane was never announced publicly, but it is privately confirmed to be $800 million, one-fifth of which went to Pandit. When the transaction closed in July, he received $165.2 million for his share of Old Lane, $100.3 million of which he put back into the fund, according to company records. There it will remain, in either Old Lane or other Citi hedge funds, for another four years. Pandit has the $65.2 million he cashed out, another $2.5 million he was awarded by the board in January, plus restricted stock grants and other goodies that should push his first-year pay well north of $200 million.

After the acquisition, Pandit was promptly named the head of Citi’s ­alternative-investments unit, which now included Old Lane. Other fund managers from Old Lane were shifted elsewhere, however, which triggered a provision in the fund’s partnership agreement that allowed investors to bail out if three or more key people departed. Almost all the investors—mainly institutions—decided to pull out their money. When the fund was shut down to outside investors in June, it was almost an anticlimax.

Old Lane certainly served its purpose, though, if its purpose was to function less as an investment vehicle than as an expensive way to bring Pandit and his cohorts to Citigroup. After six months of heading the alternative-investments group, Pandit was named head of the institutional clients group in October. Then in November came Prince’s forced departure, and Pandit emerged as C.E.O.

Just as Prince, a lawyer, was the right man for the Citi helm in the wake of its Enron and WorldCom misadventures, Pandit fit the moment. Risk, having been handled so badly across the industry, had become a Wall Street buzzword, and Pandit was viewed as Mr. Risk. It was his brand, so to speak, even if, in reality, that branding was a stretch: Old Lane was clearly a disappointment, and even Pandit’s Morgan Stanley experience was more about avoiding risk than dealing with it directly.

Pandit has surrounded himself with an inner circle of trusted advisers, led by Havens and chief administrative officer Don Callahan. And he has researched his plan to fix Citigroup with a focus bordering on obsession. He has consumed every scrap of information about Citi that he can, reading yellowed texts with titles like Marcellus Hartley, A Brief Memoir (Hartley was the first president of the International Banking Corp., which was acquired by the old National City Bank) and carefully preserved annual reports dating back to 1956. All were provided for him by his fellow history buff John Reed, whose name is duly inscribed in each volume. Together, the volumes chronicle the corporate folklore of the tradition-conscious financial superstore that Pandit now runs.

Pandit has traced the company’s various permutations back to 1812, when the City Bank of New York was founded as a successor to Alexander Hamilton’s ill-fated Bank of the United States. “With any organization that’s been around for 200 years, it has a history and culture,” he says. “It develops a unique DNA in many ways. To get a clear sense of that picture has been very important to me.”

The unflattering truth about Citigroup today is that the company’s defining quality is not innovation—not A.T.M.’s, unsecured personal loans, credit cards, or any of the company’s other firsts from its golden days—but overreaching (as with the subprime mess) and stagnation. No amount of nostalgia can paper over the troubles that face the sprawling company. Of the 25 independent research firms surveyed by BNY Jaywalk, only five rate Citigroup shares a “buy,” with the rest rating it “neutral” or “sell.”

In the first nine months of Pandit’s tenure, the company has been hit by staggering losses stemming from the burdens of the recent past. Citi amassed $7.6 billion in red ink since Pandit came onboard, with mortgage-related write-downs (mostly the legacy of his predecessor) exceeding $54 billion, much of that from subprime securities and other mortgage-related financial instruments. Citi, of course, was hardly alone. Prince was eased out the door at almost the same time as Merrill Lynch’s Stan O’Neal during the same round of subprime-related head choppings.

Pandit plans to shed $400 billion of Citi’s least desirable legacy assets over the next three years. He’s already parted with Diners Club (though the impetus for that move predated his arrival), as well as CitiCapital, the company’s equipment financing division, and there have been miscellaneous divestitures of other minor units. There have also been cutbacks: Bank branches have been shut, and fewer mortgages have been written. But even if that $400 billion could be removed from the balance sheet tomorrow, it would reduce Citi’s $2.2 trillion in total assets only by less than a fifth, which may not be enough. Citi’s elephantine structure was being criticized well before Pandit came on the scene, and the pressure to break up the company has intensified since he arrived. It didn’t help when Reed told the Financial Times in April that the merger of Citicorp with Salomon Smith Barney was a “mistake.”

Perhaps most painful of all for Pandit are the suggestions among analysts and the media that he is not the solution to Citi’s ills but part of the problem. A widely hyped three-and-a-half-hour dog and pony show for analysts and investors on May 9 received tepid reviews, and an employee forum held five days later played to a corporate auditorium with conspicuously empty seats. He was criticized after the company’s annual meeting in April. Some of Pandit’s moves—such as his revival of the “Citi Never Sleeps” ad slogan from the 1970s and the “important” email that he spammed to customers in May describing his plans for the company—have been greeted with something approaching derision.

“Much ado about nothing,” wrote Oppenheimer & Co. analyst Meredith Whitney after the May 9 program, which she said “regurgitated themes outlined over the past several months” and was identical to one given by Prince a year and a half before. Citi, she believes, may be “past the point of fixing.” Critics like Whitney contend that Pandit has not sufficiently addressed the company’s pressing problems, such as its antiquated and incompatible technology, which will be expensive and disruptive to fix. Pandit is also faulted for not having a clear enough post-cutback plan. “You grow to greatness; you don’t shrink to greatness,” says Jim Huguet, a longtime Citigroup critic, who runs Great Companies Investment Management in Tampa, Florida.

Even if Citi completes its shrinkage, it’s not clear how it will then grow. The firm’s top brass, now dominated by longtime Pandit cohorts from Morgan Stanley and Citi who were elevated by Pandit, are putting on a brave front. But much is out of their control. Gary Crittenden, Citi’s chief financial officer, says that the company has acted to reduce risk in its positions in anticipation of a major increase in home foreclosures during the year ahead: “Although you can calibrate the impact on credit cards pretty well, because we’ve been through some of these cycles as an industry in the past, this is kind of new territory with real estate. So the order of magnitude of that could be very large, and it may play out over a long period of time.”

That, in turn, will cast a pall on Citi’s ability to deploy its cash. “We’re in a strong capital position,” Crittenden says. “Still, we have mortgages on our books, ordinary nonqualifying prime mortgages, as do others, and these are not trivial amounts. As long as you have those exposures, you’re going to be careful about how you commit your capital, even if you’re in a strong capital position.”

As for the omnipresent stench of subprime mortgages and the related derivatives, Pandit acknowledges that more write-downs are possible. So one would think that Citi would be careful about spending money, even if on dividends, particularly when there are no earnings from which to pay them. Asked about the dividend, Crittenden points out that, losses notwithstanding, the company’s cash flow is “largely unimpeded” and the dividend will continue. 

Back in India, Pandit’s rise to the top of the U.S. financial heap was greeted with something approaching ecstasy. While not quite the classic Bollywood story—Pandit is too wellborn to resemble the archetypal Indian movie hero—it comes close.

In an interview with the Times of India, Pandit’s father, Shankar, described the phone conversation he had with his son after he became head of Citigroup. Speaking in their native tongue of Marathi, Pandit told his father “in a calm but happy voice that everything had gone well.” Shankar added, “We do not use words like thank you and sorry in our conversations. But my son was definitely very excited. In fact, my grandson Rahul could not contain his excitement, and he sounded so proud of his father, telling me how thousands of people were listening to his dad speak.”

Pandit is not a sentimental person, not even about India. Though now a U.S. citizen, Pandit, as an Indian native, is entitled to the Indian government’s Person of Indian Origin card, which would give him various privileges in India, including the ability to buy real estate. Even outsiders who marry Indians can get a P.I.O. card. But Pandit doesn’t have one, and he doesn’t even seem to know much about it.

Instead, his passion is reserved for Citi, and one senses in talking to him that he is almost frenetically anxious to make it all work. At the moment, Pandit is deeply concerned about recruiting top people to Citigroup—he’s “talentcentric,” as former Treasury Secretary Robert Rubin puts it. Kaden tells me how he flew to London with Pandit to recruit Terri Dial, a top retail-banking executive at Lloyd’s of London. In two hours, he says, she was won over. “He breeds loyalty in people because he’s humble and willing to listen,” says Ajay Banga, a Citi veteran who runs the firm’s Asian operations.

Banga compares Pandit to his old boss Sandy Weill, whose instincts for dealmaking were legendary. “In his gut is a comprehension of risk-reward,” Banga says. “He’s like Sandy. Sandy used to get it.”

Perhaps, but what Citigroup needs now is not a wannabe Sandy Weill but someone with the elusive qualities needed to revive the banking giant from its slump. Pandit’s current course doesn’t seem bold enough, nor does his vision seem clear enough, to put the lumbering colossus back on track. The Citi execs I interview seem hard-pressed to come up with a cogent answer for what would fix the company, and they also seem a bit anxious to correct any impression that Pandit is indecisive, as some press reports have suggested. Callahan says, “He was just in here: ‘I want to do this, I want to do that.’ He’s a real man of action, always has been—a mind that works quickly.”

Money manager Jim Huguet points out that when he interviewed Jack Welch for his 1999 book Great Companies, Great Returns, Welch told him that it took five years before he began to feel that he understood General Electric. Pandit realizes that the market will simply not wait that long.