Monday, November 05, 2007

CitiSmorgasbord: Another One Bites the Dust

Citigroup CEO Plans to Resign As Losses Grow

Bank's Board to Meet With Prince on Sunday; SEC Queries Accounting

—Wall Street Journal

Ah, here we go again.

Another corporate big gets the axe, weeks after promising to right the foundering ship and receiving assurances of full support from key shareholders—in this case a Saudi prince—and his board of directors.

Citigroup Inc. Chief Executive Charles Prince is planning to resign at a board meeting on Sunday, according to people familiar with the situation, as the bank faces big new losses from distressed mortgage assets.

—The Wall Street Journal

No doubt Citibank shareholders will feel better, as Merrill Lynch shareholders did after their former star CEO got the axe (See “Chipping and Putting While Merrill Burns”).

After all, everybody loves a sacrifice, don’t they?

But who, precisely, is the bad guy in the Citigroup story? Is it really Chuck Prince?

Full disclosure: I’ve met Chuck Prince once, in his role as Citibank’s representative to an inner-city fund foundation fund raiser, and I liked him. Still, I have no idea whether he’s liked at Citibank, which is where it counts, professionally, nor do I know what his peers think of him, or what role he played as Sandy Weill’s legal honcho during the years Weill was pyramiding financial acquisitions into the now-maligned Citigroup.

Still, was Chuck Prince the problem here? Did four years of Chuck Prince do something to Citigroup that destroyed an already-great company?

Today’s Wall Street Journal article contains a hint at the answer:

“We don’t have any culture and that’s definitely the problem,” says one long-time employee who asked not to be identified. That represents a big change from the 1970s and 1980s, when the bank had such a strong culture that other firms routinely raided Citi for top talent.

Hmmmmm… Recall the timeline behind Citigroup's creation:

1. Sandy Weill merges his Travelers Group with Citibank in 1998, shmooshing together two wildly disparate cultures into one financial smorgasbord re-christened as Citigroup.

2. Sandy Weill takes over as sole CEO of Citigroup in 2000.

3. Sandy Weill takes nearly $1 billion in compensation from Citigroup.

4. Sandy Weill retires from Citigroup in 2006.

And poor old Citibank hasn’t been its old self since. I repeat: hmmmmm…

Now, I don’t know Sandy Weill and I am sure he deserved every dollar of the nearly $1 billion he received in his years at Citigroup or CitiBank or CitiSmorgasbord or whatever it was he wanted to call it.

But I think if Citigroup’s shareholders and its board of directors and Wall Street’s Finest are looking for someone to blame, they might study a little more carefully the history of this patchwork of insurance companies, brokerage firms, and banks called “Citigroup,” and ask themselves whether they’ve dethroned the right man.

From the longer view, this looks more like the latest incarnation of the age-old public company shell game in which some fair-haired CEO convinces naive shareholders, gullible analysts and complacent board members that a kabillion dollar company can consistently outgrow the very market it serves quarter-by-quarter-by-quarter …until it can’t.

GE’s Welch, Coke’s Goizueta, Fannie Mae’s Raines, Citibank’s Weill—aren’t these all merely variations on a theme?

Chuck Prince—who ran Citigroup for four years—leaves in a cloud of humiliation and bad press. Meanwhile, Sandy Weill, who created Citigroup out of mergers and acquisitions that left it with “no culture” yet had the good sense to retire gracefully before the fallout, puts his Citigroup-generated stock-option uber-weath-enhanced name on hospital buildings.

Who’s really to blame for the problems at CitiSmorgasbord?

Jeff Matthews
I Am Not Making This Up

© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


Bamass said...

Anyone can come off as a sacrificial lamb if there's no discussion of anything they did themselves while in power.

Sure, you can argue, probably correctly, that Weill was excessive with his acquisitions, but Prince, rather than reverse that trend, has only exacerbated it in recent months.

Bisys, Nikko, and probably worst of all, Old Lane, are three acquisitions just from this year that have decimated Citi.

Prince was never supposed to be a long-term CEO anyway. His ouster was overdue.

dblwyo said...

Marvelous summarized and well put. Let us also recall that Weill didn't go gracefully he was booted after the mishmash he created messed up. May we also recall that he single-handedly repealed Glass-Steagal before it was legislated and the resulting "synergies" led to his analysts shilling for his bankers and setting quite a tone for the boom and bust.
We might also observe that Mr.Prince's tenure has been focused on a)cleaning up the ethical lapses, b) spinnng back off the mis-matches and c) trying to get the disparate pieces to work. One could make similar observations, though not as strong, regarding what Immelt's doing and done at GE.
All that said however Prince wasn't a finance or operation/execution guy and from multiple sources I get the clear impression that what they need is a stronger, clear unifying management system, better skills and processes, competent execution with the lines of business all held together by an overall strategy. That was what Prince should have brought to the table but didn't.
Will his successor ?

BlackLab said...

The man who poisoned the well just showed up selling bottled water.

He ought to use some of it to take a shower. Like the one shareholders are taking.

Len said...

I'm a long time shareholder and employee of a Citi sub and I'm hear to say the once again I've been burned by the people I was supposed to trust.
While senior management is able to "retire" many of us have seen our savings dwindle to the point there our retirement becomes problamatic.
I was once told by a CEO that there is "no plan to sell" the unit I was with and with 6 months we where gone.
Once again a corporate leader fails in everything except enriching his own bank account.
Too bad for those of us left behind.

eagles242 said...

Citi is another example of an ego-filled CEO (in this case ex-ceo) who builds the golden calf in his mold. Seems to me that Citi was built to be big and rewarded all for its size. Many ceos need a reality check as to how effective they really are to their owners, the shareholders (this will evoke a chuckle).

It all brings about the phrase, "does the man make the times, or does the times make the man". I suppose while it takes a bit of both, most all-stars think it is they and they alone that create brilliance. Seventy-five percent times and twenty-five percent brilliance goes along way.

Anonymous said...

Jeff: You know what one of the delicious ironies is on C?

Remember back in 2002 when Weill spun out Traveler's Insurance (TRV) to boost C's share price? This came three years after the fated merger between the two companies. I bet Chuck Prince wishes he had TRV before his resignation, especially when TRV's latest quarterly eanrings were up 24% from the same quarter last year.

The irony is that since its IPO, TRV has done quite nicely especially after its merger with St. Paul, while Citi's stock has gone nowhere. I wonder how much of the fallout really belongs on Prince's shoulders considering that Weill was the one who created a global consumer financial conglomerate?

buckeye1 said...

Jeff, I was thinking the same thing when I read the WSJ article the other day. Also, roll-ups almost always end badly, especially when a big acquisition streak ends. Just ask the shareholders of Level 3, which has been almost cut in half recently.