Earlier this week we ran into an old friend who has been trading financial stocks for several years. We were in a small bar a few steps down from street level. The wall paper was a deep red, the furniture included antique looking couches, and faux-gas lamps lit the place dimly. It was the sort of place a Victorian era vampire might feel comfortable sipping absinthe while he hunted his next victim.
“It’s not that you’re wrong on Citi,” our trader friend told us. “It’s that you’re right. But everyone agrees you’re right. This is a broken company.”
“But you’re buying it?” we asked.
“Of course. I wouldn’t give Chuck Prince more than a year,” he said, referring to the chief executive of the financial giant. “And whoever replaces him won’t have any loyalty to the structure. None of the top guys have the sort of stake in it that Chuck has to Sandy.”
Prior to becoming chief executive, Prince had worked as the bank’s top lawyer under former chief executive Sanford Weill. It was during this era that Weill had built the bank into a behemoth through mergers and acquisitions. Prince has vigorously resisted calls to fundamentally reform the bank by spinning off business. Several of the top executives at Citigroup have been recently hired from outside the bank and lack the personal ties to the Weill build-up that some feel have led to Prince’s resistance to change.
“The next boss is going to start spinning things off. None of this reduction through attrition business. He’ll make his mark by remaking the bank in a leaner, meaner image. Get out from under the shadow of Sandy. And then you’ll see the stock climb,” the trader continued. “I’m buying this thing now because I think once the rumors of Prince’s retirement get out, the stock is going to start to climb.”
He twirled the olive in the bottom of his empty martini glass and scanned the room. A trio of girls were sitting by the window. They were too far from where we sat at the bar for us to overhear their conversation. We doubted they were discussing the fate of banking chief executives.
He gestured to the barteneder for another round.
“Let’s go say hello,” he suggested. He nodded toward the girls. A smile came across his face. His bright eyes sparkled. For a brief moment we thought we saw fangs where his incisors should be. A trick of the light, no doubt.

There’s been lots of chatter about Citigroup this week in anticipation of Monday’s first quarter earnings announcement. Market Beat lists five reasons why Citigroup should be broken up. Eddy Elfenbein defends Chuck Prince against the charge that he’s doing a poor job of running Citigroup. Michelle Leder wonders if Citi will disclose the Todd Thompson settlement in its 10-K. Felix Salmon hopes that Bob Druskin will succeed Chuck Prince, pointing out that he has a very evil looking mustache. Roger Ehrenberg points out that its not a good sign when you have to pay someone $800 million just to start working for you.
So let us add some fuel to this fire. We’re hearing rumors that Robert Rubin, who has been at Citigroup since leaving the Clinton administration in 1999, may step down to take a position in Hillary Clinton’s campaign for the Democratic presidential nomination. The addition of Rubin to the Clinton campaign would no doubt be a boon to fundraising—Rubin was a favorite of Wall Street as Treasury Secretary and a fundraising powerhouse for Bill Clinton. Perhaps more importantly, having Rubin attached to the campaign would make Team Obama seem intellectually shallow, particularly on financial and economic issues.

The market responded to Citigroup’s much heralded—and telegraphed—restructuring and cost-cutting plan with a big Bronx cheer yesterday, dropping the stock price nearly 2%.* The paltry savings Citi said it could achieve, the fact that the biggest savings still lie years in the future, and the news that Citi’s overall workforce would keep growing seems only to have renewed calls for more fundamental changes at the financial behemoth.
More particularly, folks we spoke to who watch Citi’s stock think its time to bring down the house that Sandy Weill built. None of them would speak on the record, but Bill Smith, chief executive of Smith Asset Management, spoke to Crain’s and nicely captures the widely held sentiment.

“You can’t fix a structure that’s broken,” Mr. Smith argues, adding that Citi’s different components would collectively be worth $90 a share if they traded separately. He says its investment banking division, formerly known as Salomon Brothers, would trade at a higher price-to-earnings ratio than Citi does. So too, he argues, would Citi’s Smith Barney brokerage unit and international commercial banking operations if granted their independence.

We’re also hearing that this might be the beginning of the end for Chuck Prince. For years he was Sandy Weill’s lawyer, and many think he lacks the audacity to start tearing apart the financial structure built by his mentor.
“He’s the last of Sandy’s cronies still in place,” said a banker at a rival firm. “Citi won’t work right until he’s gone too.”
[Please remember we're still looking for stories from inside Citi. Get a pink slip? Email it to us! Completely unaffected by the cuts? Let us know. Skipping work this week because, hey, you might get fired anyway? Great. Tell us about it! Send it all to tips@dealbreaker.com. Thanks]
*Editor’s note: we realize this comes perilously close to violating our rule against asserting post hoc, ergo hoc explanations for market movements. So let us once again restate our official position on why this stock—or almost any stock—moved the way it did yesterday: it was the cumulative effect of buying and selling by investors.
Wall Street not impressed with Citi cuts [Crains]

Citigroup announced plans to cut or reassign 26,500 jobs today. The cuts hit the “whisper number” that Wall Street had been talking about all week—surprising some observers who had predicted that chief executive Chuck Prince might try to impress investors with deeper and wider cuts. Apparently Prince does not have this “better than expected” game down yet.
The actual job eliminations, in fact, barely exceeded the 15,000 number that had so notably failed to impress the markets earlier this year. Citi is cutting just 17,000 jobs out of its total workforce of 327,000—a number that some scoff at as barely better than attrition. “Accelerated attrition,” was how one Wall Street analyst put it to DealBreaker this morning. Only 1,600 jobs are being eliminated in New York City.
Another 9,500 jobs will be relocated from expensive financial labor markets such as New York, London and Hong Kong to less costly areas—perhaps India.
Citi remains an institution caught in a bind. Although Sandy Weill tried to build the bank into a one-stop financial institution, the dream of a unified banking firm remains largely unrealized. That dream, some believe has been stymied by regulations in the US and abroad that prevent Citi from realizing synergies from its combined business. Others say Citi has been damaged by a lack of leadership in its top ranks.
Even as it announced plans to streamline operations and save $2.1 billion this year through cost cutting, the bank is apparently considering spending $600 million to buy a hedge fund founded just one year ago by a former Morgan Stanley executive Citi wants to hire. That’s a pretty expensive executive acquisition program.
We’re looking for more news from inside Citi. And that’s where you come in. Email your Citi-cuts stories to tips@dealbreaker.com or leave a comment below.

Citi to Cut 17,000 Jobs in Broad Overhaul [DealBook]