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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerCitigroup (NYSE: C) should be two companies -- at least.
The break-up I envision would separate investment banking and corporate financial services from retail banking, lending, insurance and brokerage services. The investment banking sector is going to advance much faster in the next ten years than the retail sector, and the two have nothing in common.
Citigroup is not too big, it is too disoriented. CEO Chuck Prince is trying to sculpt Mount Rushmore with a pocket knife and given another 200 years maybe he could do it. But he does not have that much time and nobody will be around to see the result, even if it could be done. You can find the case for this in my recent post Chasing Value: Bear Stearns - cheap and growing.
Some investment banks might even be prospective merger and acquisition targets for a new leaner and meaner Citigroup partner. Bear Stearns (NYSE: BSC), which I own shares in, is small enough to be in play and there are others.
Citigroup has grown and prospered by many acquisitions, but not all are an equaly good fit. In last week's Sunday Funnies: Citigroup is all fired up I suggested it was time for Chuck Prince to step aside. That does not have to be an imperative, but he must find the courage to do the job that needs to be done.
On the retail side, Citigroup is still expanding its branch system at home and abroad. An independent and focused retail bank with consumer-oriented additional services would remain a world leader and perhaps could grow faster with less resistance in it's target markets. A more focused agenda might also lead to a major U.S. merger with any number of strong candidates, and in the end it could end up the back on top.
Shareholders have waited long enough and want to see a reward from their investments already, so Citigroup should break-up now and offer the shareholders that reward.
Disclosure: I do not own shares of Citigroup or hold any options.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.
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Reader Comments (Page 1 of 1)
4-23-2007 @ 3:17PM
Brett Majors said...
Yes, Citigroup must be broken up now. But, it's not just because shareholders like me have become fed up with Prince's excuses and lack of results.
Citigroup should be broken up now, because now shareholders and the board of directors have 100% of the information necessary to make this call with confidence.
Chuck Prince's strategy, keeping Citi together, cutting costs by combining back offices, and improving revenues through "One Citi" is a risky plan. It's likely to fail. But more importantly, even if it succeeds in spades, Prince's plan will not have added anywhere near the shareholder value of a breakup. The NPV of the cost cuts, at best $15 Billion, is tiny relative to a that of a breakup. And "One Citi", the plan to allow brokers to loiter around the bank, is at best a small, incremental boost to revenue and at worst the source of a costly new scandal.
Chuck Prince is pursuing a strategy which, even in the best case, is demonstrably inferior to a breakup.
If Bob Rubin and the board want to start earning their pay, they'll make the call right now rather than allow Prince more time in the hope that his inferior plan "works".
4-25-2007 @ 8:48PM
bob said...
what do we do next?