It's back to the future time at Citigroup (NYSE: C). We can just pretend that the last 11 years never happened. As I posted, that's when Sandy Weill merged his Travelers with Citi, which led to the repeal of the Glass-Steagall Act. But as I suggested in a recent post, that whole process is being reversed with with Citi spinning off Smith Barney for $2.7 billion -- yielding a $5.8 billion after-tax gain for Citi.
And today, it looks like things are going a step further. That's because Citi CEO Vikram Pandit is talking about separating its commercial and investment banks. As someone who has been railing against this idea for decades, I am glad to see that Citi is talking about bagging that lousy financial supermarket idea.
It looks like Citi wants to dump the consumer side of its its business and keep the corporate and investment banking side. Interestingly, this is not that different from a proposal I posted about almost two years ago -- in April 2007 -- to divide Citi into Citigroup Consumer (CC) and Citigroup Business (CB). In that post I suggested Citi should have sold CC in 2006 and kept CB.
So although it's late in the game and comes with great government pressure, Pandit's discussion looks like it could be fruitful. But many questions remain: Who will buy the consumer bank and the other parts that Citi wants to sell? How much capital will the sales generate? Will the parts of Citi that remain have greater earnings power than the part that was sold? Will the stock in the remaining part of Citi have a higher stock market valuation than it does now?
So many question, and so little time left to salvage a once great enterprise! The irony of it all is that Citi was the leader in breaking the 65-year regulatory prohibition against joining investment and commercial banking. And if Pandit has his way, it will be the first 11 years later to go back to where things were when Glass-Steagall passed in 1933.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and is the author of You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns Citi shares and has no financial interest in the other securities mentioned.
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Reader Comments (Page 1 of 1)
1-13-2009 @ 5:49PM
alan said...
Every shareholder, both individual and institutional needs to become an activist and FORCE the ENTIRE MANAGEMENT TEAM as well as THE BOARD out ASAP.
Look at what these idiots have done over the past 2-3 years, look at what they are doing now, and look at what they plan to do in the future.
Sure, Citi will survive as a puny 90 pound financial weakling in a sea of giants. They will be acquiredin no time.
There is no strategy in place, no executional plan, no action steps. Pandit and company are making it up on a day to day basis.
Are shareholders so tired, so depressed, that they are just sitting back and watching the Titanic slowly go under? Stop feeling sorry for yourself and get off your butt and do something about it.
At this rate in one to two months there will be no meat left on the bones of Citi, just worthless pieces of paper formerly called shares !!!!!
1-14-2009 @ 12:20AM
Nick Knight said...
The problem is that Glass-Steagall was ever repealed in the first place. This, along with legislation which immunized credit default swaps was part of the deregulatory orgy, brought to the fore by Republicans, and helped by Bill Clinton which brings us the the financial mess we are in today. Tearing down safeguards that FDR put in place is like sowing the wind. Of course, when one does this, he reaps the whirlwind!! Welcome to 1930!!!
1-14-2009 @ 12:43AM
Phil said...
I wish Citi never happened, too... they bought my mortgage from PHH (thanks for screwing me over, PHH!), cut us a pair of lines of credit which were promptly reduced, and stamped its name on many of our credit cards. Citi should rot in hell!