There has been a bunch of commentary about Citigroup (C) now that the 10th anniversary of the merger between Travelers and Citicorp that created the behemoth is upon us.
The commentary has fallen into 2 camps:
1- Better management can fix the “Financial Super-Market” and right the ship.
2- It has been a mistake since day one and need to be broken up.
Let’s ignore the performance of the stock vs. the S&P since we all know that price performance and success or failure are not necessarily a direct correlation. While it is true that after 10 years shareholders at C are 30% behind the average, up until the last 10 months, shareholders we handily ahead of the average for the entire decade.
So, if we have the conversation based simply on that, we would say that the company itself has performed as results have driven the stocks price bit that recent management blunders have caused the collapse.
I think we can agree that is far to simplistic a way to look at it.
One would be hard pressed to argue that Citigroup has not had the burden of being saddled with poor management. Sandy Weill, who created it was a classic gunslinger by even the most conservative comparisons. Chuck Prince, who followed him was left a legal and regulatory mess that he did clean up but so lacked Weill’s personality and charisma, he was never able to rally support for any initiative of his own. It also did not help that he was essentially Weill’s hand-picked successor.
Along the way the executive management at Citi was left in shambles. Names like Jamie Dimon, now the head of JP Morgan (JPM), Wells Fargo (WFC) Head Richard Kovacevich, AIG (AIG) Chairman Robert Willumstad all called Citi home and were squeezed out. The list of second tier names is longer and more extensive.
Weill ran off potential challengers while in charge and his choice of Prince as successor without a real process cause others to “seek other opportunities” in frustration.
Enter Pandit. A successful hedge fund manager and by all accounts a very smart man he inherits a mess the others were most likely offered and all refused. Capital shortfalls cause Pandit to seek billions from the middle east and now leave him with little choice.
While the financial super-market idea will soon be put to sleep permanently (if it has not already) as a bad idea from the start, an argument can made that while an unwieldy beast, it may have worked. A huge operation like that needed deft management to execute. Could they have executed it, Citi may indeed have become the “World’s Bank”. Despite no real leadership in the CEO suite, Citi did grow earnings and its dividend substantially.
Alas it will not happen. Weill was too focused on his position rather than that of the bank and ran off quality people around him. Rather than cultivate leadership in the mold of Goldman Sachs (GS), he decimated the ranks. Prince was so focused on fixing the mess left behind, he did not see what was going on around him.
Pandit now has no other option but to break off chunks of the operation if for no other reason than to restore above adequate liquidity without further shareholder dilution. Long term the bank is still a behemoth in terms of assets and shareholders buying today will be glad they did.
Shareholders who owned shares for the last decade though will be left wondering what could have been had management bee focused on what was really important.
I guess that means that I am not sold on the “too big to manage” camp when it comes to Citigroup, I am in the “poor management” one.
Disclosure (“none” means no position): Long C
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