It's official this morning. Chuck Prince is gone as Citigroup CEO.
In his place, Bob Rubin, head of Citi's executive committee, becomes interim Chairman, and Sir Win Bischoff, a senior, non-board member of Citigroup, becomes interim CEO.
Will this change Citigroup's near term prospects? Probably not. Here are a few reasons why I believe that- quotes in this morning's Wall Street Journal's Money & Investing section's article from Rubin,
"The direction that Chuck set is exactly where the institution needs to go."
"The board is a very strong board and a very good board."
Just unbelievable. Here's a bank that has engaged in questionable lending practices, via their reputed $80B of face-valued SIVs. Now the bank is reported to be planning additional write downs of $8-11B on their own assets. The hydra-headed cultural monster encompassing the former Salomon Brothers, Smith Barney, and other remnants of Sandy Weill's acquisition campaigns, plus Citi's original quadrapartite consumer-institutional-transactions-asset management businesses, remains out of control.
More sanguine are observers quoted in the Journal piece, such as Doug Kass,
"I and others should hold Rubin partially responsible" for Citigroups' struggles."
And Robert Lamb, former Weill aide,
"The board has been part of the problem not part of the solution. They were willing to give more and more rope to Chuck Prince."
It's hard to disagree with these outside observers, when you view Citi's performance going back more than four years. Remember, Weill created a regulatory mess which accelerated his own departure, and left Prince with the job of cleaning that up. Which he largely did.
The trouble is that Citi is an entity which is unlikely to ever be a better investment opportunity, long term, than the S&P500 Index. "However, the real damage has been occurring, continually, for nearly four years under Prince. As the nearby Yahoo-sourced price chart for Citigroup and the S&P500 Index shows, the bank has treaded water since late 2003 under Prince's mismanagement."
The problems with Citi included Chuck Prince's ineptitude, but in now way were or are limited to that. The company's structure is now inherently flawed.
In a world of successful private equity and hedge fund shops, all of which have far less business diversification than the modern, large US money center banks- Chase, BofA, and Citi- the hypothesis remains unproven that such a large commercial bank, in so many diverse businesses, can ever provide investors with long term prospects of outperforming the much less expensive, less volatile S&P500 Index.
A lot of people are using Prince's resignation to heap even more accolades on Chase's late-coming CEO, Jamie Dimon. Dimon, of course, was the one-time heir-apparent at Citi, before his mentor, Sandy Weill, fired him. As I wrote here, recently, one quarter does not a successful long term track record, nor business model validation, make.
No, I think Citigroup is simply the worst-managed, most dis-organised of the three American commercial bank Goliaths. None are likely to be a better investment bet, through time, than a broader index, such as the S&P, when risk is considered.
As for Rubin, isn't he up to his armpits in this mess already? Didn't he oversee and favorably pass on the major business decisions, such as the SIV creations, and holding various now-bad assets in portfolio, at Citigroup?
Rubin doesn't actually have a track record as a hands-on manager anywhere. At Goldman, he was Mr. Outside to his co-head, Steve Friedman's Mr. Inside. And at Treasury, Rubin was actually responsible for draining the US financial system of liquidity by retiring the long bond, thus indirectly helping to trigger the 2001 contraction by engaging in unnoticed monetary base shrinkage.
I continue to believe that Citigroup will remain a poorly performing company so long as its current organizational structure and business scope is left intact. The only person who could 'save' Citi, in my opinion, is s/he who would destroy it via spin offs or sales of units, to pare the pieces back to understandable, accountable, motivated sizes which allow for competent management.
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