Corbat, photographed in his office, is an incrementalist. "I'm not someone who throws myself out in front of things," he says.
Photo: Ben Baker
By Jennifer Reingold and Doris Burke
May 6, 2013

In December, Citigroup’s new CEO, Michael Corbat, appeared at a meeting of company alumni in Manhattan. It was their first interaction with Corbat as chief, and between the unceremonious ouster of his predecessor, Vikram Pandit, and the bank’s disastrous half-decade, the mood was glum. Corbat stepped to the mike and displayed the blue cufflinks he was wearing, imprinted with an old Citi logo. They’d been sent to him by the wife of a recently deceased employee of 46 years who’d been so proud to work for Citi that he’d had them made. The widow sent Corbat the cufflinks because she hoped he’d be able to revive the type of pride her husband once felt. Corbat looked out at his audience. That’s what I care most deeply about, he said.

“I remember hearing kind of a gasp,” says one of the attendees, Hans Morris, a former CFO of Citi’s institutional and capital markets businesses. “He just won over the room.”

Slowly and quietly, Michael Corbat is beginning to win over more than a room of alumni. Seven months into his tenure, Corbat, 53, is emerging as a fitting leader for a company trying to restore its tarnished reputation. He isn’t flashy or nakedly ambitious. He’s thoughtful rather than spontaneous. And he’s an incrementalist, not a revolutionary, as we’ll see from his strategy for Citi. “I’m not somebody who throws myself out in front of things,” he says with a wry smile in a rare interview.

For a bank that has spent the past decade lurching from one melodrama to another, Corbat’s ascent is a welcome sign that maybe good old-fashioned operating experience counts. After all, the three men who preceded Corbat — Vikram Pandit, Chuck Prince, and Sandy Weill — were, respectively, a hedge fund whiz who excelled more at managing money than managing people; a smart but reactive corporate lawyer; and an epic empire builder and serial acquirer. Exclaims management consultant Ram Charan, a longtime Citi watcher: “It’s the first time in 28 years, since Walter Wriston, that Citi has had a real professional leader.”

Citi’s stock has jumped 28% since Corbat took over in October, trouncing the 12% increase in the KBW bank index. On April 15 the bank reported an encouraging $3.8 billion in profits, with revenues up 6%. Bright spots included a continuing drawdown of the bank’s “bad” assets and more focus on productivity — what Corbat is calling “a culture of measurement.” That’s an odd choice of words for a bank. Is it conceivable that Citi did not previously possess a culture of measurement? Well, the bank claims it’s the first time it’s consistently using “scorecards” across all business functions and geographies.

In fairness, when you’re devoting all your energy to survival, there’s less time for metrics. Only a few years ago, an institution that traces its origins to 1812 seemed on the point of collapse. Citi was the recipient of not one but two TARP bailouts, totaling $45 billion (which it paid back). Its shares cratered 98.2% from their 2006 high.

A return to steady, healthy profits would be welcome news indeed, and Corbat’s measured approach is converting skeptics (though some people favor the more radical course of dismantling the bank). “I am more encouraged by the chairman and CEO at Citigroup today than in any of the other periods in the 15 years since Citigroup was in its current form,” says Mike Mayo, an analyst at Crédit Agricole Securities and a longtime Citi critic. He’s referring not just to Corbat but also to Michael O’Neill, the former CEO of the Bank of Hawaii who became Citi’s chairman a year ago and helped engineer Corbat’s rise.

Corbat may be — dare we say it? — a little dull. But now is the time for dullness at Citi. “I have no interest in a rock star CEO,” says analyst Meredith Whitney, who runs an eponymous firm. “I want a CEO who’s going to execute.”

Michael Louis Corbat certainly looks the part of a bank CEO. He’s tall and athletic, with preppy good looks, elegant suits, and the sort of New England accent that conjures what used to be called the “Eastern Establishment.” But few people in his hometown of Shelton, Conn., would have pegged him as the future leader of a global bank. The second son of a GE company man and a mom who ran a travel agency, Corbat stood out for his prowess at hockey and as an offensive tackle on the Shelton High School football team. He was an indifferent student — until he met a Harvard alum who convinced Corbat he could play sports and prepare for a successful career if he attended that august institution. Says Corbat’s older brother, Tom: “He kind of flipped a switch and worked as hard as anyone I’ve ever known.”

Despite the effort, Corbat was rejected by Harvard. So he buckled down for a post-graduate year at Choate Rosemary Hall boarding school to prep for a second try. Football teammate Lou Varsames says he’ll never forget his first encounter with Corbat. “At the end of every practice we would have to run four to five laps on the football field. He would always beat everyone by at least half a lap. I have never had a lineman beat me, never mind the entire team. But he just does what it takes.”

Corbat made it to Harvard on his second attempt. There he earned notice as a football star. A 1982 Harvard Crimson article called him a “6-foot 3-inch, 230-pound dear” who flirted with elderly dining hall workers and credited his teammates for his success. Corbat started his own business, which employed students to clean up the school’s football field and ice rink. He was named an All-American and drafted by the short-lived United States Football League but decided against going pro. He told himself, “This is not really where my future lies.”

Like many an Ivy Leaguer in 1983, Corbat determined that his future lay on Wall Street, and he managed to land at Salomon Brothers, then the “it” firm. He wasn’t the smartest guy at Salomon, but he impressed colleagues with hard work and likability. Starting as a mortgage salesman in Atlanta, he moved up through the derivatives, high-yield, and emerging-markets departments. Corbat was a reliable, well-prepared manager who listened as much as he talked. In other words, he was anything but an alpha male in a firm famous for them. In the raucous atmosphere of Salomon, he was known as “the Senator.” Says Patrick Dunlavy, who supervised Corbat for several years: “He understood better than most how important internal relationships are to a career.”

Corbat made managing director in 1993 and became head of Salomon’s fixed-income sales. He eagerly took on new assignments in different parts of the bank, gaining a reputation for improving results and morale wherever he went. In 1998 he moved from Salomon, which had disappeared into the maw first of Travelers, and then of Citi, to become the latter’s chief of emerging-markets sales and fixed-income origination. The many acquisitions created “big cultural divides inside Citi,” says former exec Morris, but Corbat bridged the various factions. “I don’t know anyone who ever said they didn’t like reporting to him.”

Corbat continued to rise, taking charge of global relationship banking in 2004 and global corporate banking in 2007, then adding the commercial bank to his responsibilities. In September 2008, Pandit tapped him to replace Sallie Krawcheck as head of the global wealth-management unit, which included Smith Barney. (Even Krawcheck has kind words, calling Corbat “reasonable and thoughtful and mature and grownup and noncontroversial and considered.”)

Corbat became a man without a portfolio in 2009 when Citi moved its wealth management unit into a joint venture managed by Morgan Stanley. Rather than seeking a sinecure, he accepted a job that any ambitious careerist would have fled: divesting the company of $650 billion in toxic CDOs and other assets, which the bank had moved into a new entity called Citi Holdings to insulate itself from the mess.

It was by far the riskiest move of Corbat’s career. Suddenly the relationship guy with the country club accent was strapping on protective gear (picture Jeremy Renner in The Hurt Locker) to defuse financial bombs. One false move could not only end Corbat’s career but also imperil Citi — and, by extension, the world financial system.

Even the board had doubts, labeling him as “interim.” Corbat’s wife of 28 years, Donna, teased him, he recalls: “She said, ‘Jeez, I’m so proud. I saw your name on CNBC! I’d like to ask you a question: If nobody wanted the job, why are you only interim?’ ” Two months later Corbat was anointed permanent chief, and today he claims it was his favorite job ever. “It was important to the company,” he says. “It crossed a bunch of areas that I knew and had exposure to. It was global. And then, the uniqueness of it — nothing like this had ever really been done before.”

In his almost three years at Holdings, Corbat reduced the asset pool from $650 billion to $225 billion. Says Todd Thomson, a top Citi executive until 2007: “Doing a good job is actually understanding what you have and its value today. He did not simply dispose of everything.” Pandit recognized the success in late 2011 by promoting Corbat yet again, this time to oversee the bank’s Europe, Middle East, and Africa operations from London. The next promotion, however, wouldn’t be up to Pandit.

Pandit had done a heroic job keeping Citi afloat, and by 2012 the company had weathered the worst of the financial crisis. But new problems were brewing at Citi, and many of them led directly to the CEO, who, several former executives say, didn’t have a strong relationship with Citi’s board, which had turned over almost completely after the meltdown.

In March 2012, just as chairman Dick Parsons — Pandit’s biggest ally — announced he’d be retiring, the CEO presided over several embarrassing miscues. Citi flunked its stress test, in part because of Pandit’s poor communications with federal regulators. Then, in July, the company announced that the sale of a chunk of Smith Barney could trigger an unexpected charge, which later turned out to be $4.7 billion. Pandit’s management style didn’t help. Several former executives describe him as aloof — as lacking in EQ, or “emotional quotient,” as he was bursting in IQ.

By October chairman O’Neill and the board had decided it was time for Pandit to go, with Corbat as his replacement. O’Neill and Corbat had become close while O’Neill served on the subcommittee devoted to Citi Holdings. When Pandit showed up for what he believed was a routine meeting on Oct. 15, he was told his tenure was over. His departure was presented as voluntary but the abruptness of the move belied that explanation. Pandit left his office that evening and never returned. (Pandit did not respond to interview requests.)

When asked about the transition, Corbat looks deeply uncomfortable. Does he still have a relationship with Pandit? He pauses. He sighs heavily. Finally, he says, “I would like to think so.” He acknowledges the two have not spoken since Pandit’s departure.

Corbat is known for his relationships with regulators, a critical plus at a time of great uncertainty. Says Sheila Bair, ex-head of the FDIC (and now a Fortune columnist), who met with him while he was in charge of Citi Holdings: “He was very diligent and always had well-thought-out presentations. You just felt you were getting good, straightforward information from him. We only had about eight to 10 meetings, but what I did see was, frankly, refreshing because not all the executives at Citi were as forthcoming.”

Corbat’s close ties to chairman O’Neill have fed speculation that the CEO is merely a figurehead. Corbat laughs off any suggestion that O’Neill is the decider. “For the first 90 days or so, he probably spent 70 or 60 of them in Hawaii,” Corbat says. “So I would ask him what it’s like to run the company from Hawaii. Did he actually think we could move the headquarters there?” At Citi’s annual meeting in April, O’Neill said of Corbat, “He briefs me on what is going on, but I have a clear understanding of who is running the bank. I am not intrusive, but I am interested.”

So far Corbat’s strategy is a scaled-down version of Pandit’s plan to take advantage of three trends: digitization, urbanization, and globalization. But where Pandit argued for spending to gain market share lost during the meltdown, Corbat says Citi can no longer offer everything for everyone; the bank is actually exiting some areas altogether.

Within seven weeks of taking over, Corbat announced ambitious expense reductions. He eliminated 11,000 jobs. And he moved to boost accountability, creating scorecards for each country and laying out three metrics to judge Citi’s success by the end of 2015: efficiency ratio (noninterest costs as a percentage of operating revenues, excluding Citi Holdings) in the mid-50% range; a 10% return on tangible common equity; and a return on assets of 0.9% to 1.1%. The equivalent figures at the end of 2012 were 72%, 5%, and 0.4%, respectively. Can Corbat achieve his goals? Says analyst Mayo: “It’s the end of the first inning, but I think he took an early lead. I like the decisiveness.”

For all the positive signs coming out of Corbat’s Park Avenue office, not everyone thinks effective execution will be sufficient to return Citi to prosperity. Some — including Sandy Weill, the man most responsible for building Citi into a massive “financial supermarket” and a self-described Corbat supporter — believe it’s too big to run today. “If we’re going to have a regulatory process that will preclude a company’s ability to take some risk,” Weill tells Fortune, “then we should think about taking the risk part of the business out … and it should be in a freestanding unit.”

Citi is a collection of global businesses, with dominant positions in very few categories and little evidence that its scale makes it efficient. Says Thomson, now chairman of Dynasty Financial Partners, which provides a variety of services for financial advisers: “Citi has come down a long way from when it was once the most profitable and most significant financial services firm in the world. It simply isn’t that important anymore. Mike’s challenge is to lead it back to both profitability and strategic relevance.”

With $1.9 trillion in assets, Citi is the third-largest U.S. bank, behind J.P. Morgan Chase and Bank of America. It has scant presence beyond the coasts and little hope of expanding in the sort of regulatory climate that emphasizes bulking up capital rather than making acquisitions. It remains an elite and very profitable brand in Asia and Latin America but has suffered from the slowdown in Europe. Investment banking is a shadow of what it once was; its wealth management business now consists of a private bank and little else. And while its global transaction services business — the mundane but profitable business of moving money around the world — remains powerful, is that enough to anchor a world-leading financial services company?

Corbat insists it is. He calls Citi’s reach in more than 100 countries “unique.” It’s the top 150 cities that really matter both for institutions and consumers, he says, and Citi is in 130 of them. “What we’re looking to serve is the mass affluent, the mobile, the person who wants to feel the comfort of going from Park Avenue to the Strand in London to wherever and knowing that there’s a Citibank there for them,” he says. “We’re not going to compete in the hillsides.”

The CEO politely dismisses the notion of breaking up Citi. “I think we’ve got the ability over time,” Corbat says, “to show that our model has become more unique and more valuable.”

For now, investors are thrilled to see something approaching stability. But Citi will soon need to grow again. That’s no mean feat in a limp economy, and Corbat hasn’t yet communicated how he will pull that trick off.

What’s clear is that after his years of practice in disposing of disappointing assets, bloat will not likely be part of the equation. Morris recounts how Corbat decided to lose his football weight after college. Ever disciplined, Corbat dropped some 50 pounds by training for (and finishing) the Boston Marathon. Recalls Morris: “He said, ‘You have three choices as you get older: Work out and continue to build muscle mass, get fat, or shrink.’ So he shrank.”

Options one and two are out for the bank. All Corbat has to do now is get Citi to lose the corporate equivalent of 50 pounds. How hard could that be?

This story is from the May 20, 2013 issue of Fortune.

Update: An earlier version of this article stated that former CEO Vikram Pandit stormed out of the office after refusing to play along with Citigroup’s preference that his departure be publicized as voluntary. Citigroup requested clarification, citing a public statement by Pandit that the departure was his idea. The story has been amended to say that he abruptly left the office.

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