Savings Experiment: Snow Removal
The Money Man Behind Rick Santorum: Who Is Foster S. Friess?The New York Times [registration required] makes a compelling case that it's time for Citigroup's (NYSE: C) directors to can its long-suffering and persistently incompetent CEO. Here are the six reasons why it's time for Prince to go:
- Citigroup stock is stuck. At $48 the stock is roughly where it was when Prince took over in 2003.
- Citigroup has had five significant blow ups since Prince took over. On Monday, Citigroup warned that it planned to take a $5.9 billion write-down in the third quarter -- causing a 60% profit plunge. This was the fifth time since becoming CEO that Prince had to disclose a major problem to his board.
- Citigroup's corporate strategy is not working. The idea behind predecessor Sanford Weill's acquisition strategy was to create an organization which would be able to earn consistently high profits because when one business unit was doing poorly, another one would take up the slack. But the latest earnings miss shows otherwise -- problems in the mortgage market hurt Citigroup's consumer and fixed income units. And with the deal financing business at a standstill -- yet another pillar of Citigroup's corporate strategy is evaporating.
- Citigroup lacks management depth. One reason Prince has held on so long is that his direct reports are so weak. For instance, the two chiefs of Citigroup's investment bank are each strong executives but, several investment bankers said, they make a dysfunctional team. So far, Prince has not brokered peace between them. And after Robert B. Willumstad left his post as chief operating officer in 2005, that crucial job remained unfilled for over a year and a half.
- Citigroup does not have a handle on its finances. This summer the depth of Citigroup's ignorance about the risk on its balance sheet became ever more apparent. Citigroup's problems grew more serious with prices of subprime mortgage bonds and other complex securities deteriorating rapidly. But despite hiring a highly touted outsider as CFO, it appears that Citigroup still lacks a specific understanding of how deep the hole is likely to be.
- Citigroup lacks financial discipline. Prince has been slow to fire executives overseeing money losing operations, even though top-level firings have already taken place at other investment banks. His restraint comes across as soft, even vacillating, to hardened observers on Wall Street. In short, Prince might be a loyal lawyer, but he's way out of his league running Citigroup.
I have a suggestion for Citigroup's board -- send Robert Rubin down to Washington to persuade the flailing Treasury Secretary Hank Paulson -- a former Goldman Sachs Group (NYSE: GS) CEO -- to return to Wall Street to head up Citigroup. Paulson's record at Goldman was good and he's failing in Washington.
My proposal would be a win for Citigroup shareholders, a win for the Treasury Department, and I even think Chuck Prince would be relieved to be relieved of his thankless duties as Citigroup CEO.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup shares and has no financial interest in Goldman Sachs.
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Reader Comments (Page 1 of 1)
10-06-2007 @ 8:44PM
BamBam said...
The key observation here is that the Financial Supermarket business model is not working. Not only are multiple businesses failing at once, but the reason they're failing is the lack of responsiveness of this overly complicated and bureaucratic institution to changing market conditions. Compare Citi's sluggish response to the mortgage market to Goldman's ability to turn on a dime and profit from the volatility.
The NYT recognizes that Citi's business model is not working. And the NYT further points out that perhaps Citi may not have the management depth to run this conglomerate if Prince were fired. But, they fail to make the connection that if the Financial Supermarket model is failing, the prescription is a breakup! And Citi certainly has (or can easily recruit) individuals who could manage the spunoff single-line businesses.
Of course Paulson would be an improvement over the bumbling Prince. But, more importantly is to identify an interim CEO who will quickly spinoff Citi's various businesses.
10-06-2007 @ 10:34PM
LR Adams said...
If Citigroup doesn’t get their arms around their internal problems, such as communications, accurate expense forecasting and managerial power struggles they will implode.
The $5.9 billion write-down scheduled for the third quarter was avoidable. If they are not proactive in scheduling an independent audit, the Fed’s will do it for them. A $5.9 billion dollar write down is more than enough money to get the Fed’s involved. What a political football that would be, with elections on the horizon.
They might think about moving their headquarters to a country that doesn’t have an extradition agreement with the United States.
10-07-2007 @ 11:43AM
ebusiness said...
The NYT recognizes that Citi's business model is not working. And the NYT further points out that perhaps Citi may not have the management depth to run this conglomerate if Prince were fired.
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