bankpaysyoudividend.jpgThe Treasury’s Entity is seen as a Citigroup bailout by lot of people for the very simple reason that it is a Citigroup bailout. That might not be the only thing it is, but stupid is as stupid does, and one thing this stupid thing does (or will do, if it ever gets off the ground) is bailout Citigroup, which is reportedly on the hook for as much as $80 billion from it’s four mammoth SIVs. Since the fund could buy Citigroup’s SIVs, it would reduce the amount that Citigroup would need to write off. And reducing write-offs is something Citi desperately wants to do right now.
There’s at least a fair amount of quiet clapping about the Treasury Department’s role in creating the Entity. Citigroup, some say, is too big to fail, and the Treasury Department should step in to prevent the kind of financial market disorder that would come from the toppling of the towering financial giant.
But this kind of logic has some rethinking the wisdom of the financial regulatory reforms that allowed banks such as Citi to grow so large in the first place. When lawmakers reformed depression era laws that stood in the way of these financial super-markets, they tended to sound libertarian notes about allowing financial innovation and the operation of the free market to control the size and scope of Wall Street firms. The era of government planning was over. So the Glass-Steagall Act of 1933, which had separated investment houses from commercial banks—most famously requiring JP Morgan to part from Morgan Stanley—was changed to permit the growth of the universal banks.
Many now think that the universal bank is a failed strategy. From Citi to Merrill to Bear Stearns, there are calls for Wall Street firms to slim down, break-up and concentrate on the core businesses that made them wealthy and famous to begin with. But was it a failure? If growing into financial giants allowed them to unilaterally acquire a secret—and nearly costless—government insurance policy, it seems like a great gamble. The executives and shareholders get the upside, while the broader public insures against failure.
“What a scam that is,” writes William Greider in The Nation.
And it’s a scam the Greider thinks is over. Banking regulation will inevitably make a big comeback, he predicts.
“At least the unambiguous truth about ‘financial modernization’ is now on the table for all to see,” he writes. “That should keep the Wall Street guys from whining for a while about the oppressive nature of bank regulation. The next reform era, when it does finally arrive, will head in the opposite direction–restoring public protections for the little guys against the greedy excesses of big hogs.”
What Greider doesn’t mention is that this era of new regulations might be coming too late. Or, rather, right on time, depending on your point of view. Resistance to a new wave of banking regulation requiring bank breakups and dividing Wall Street according to regulatory fiats rather than market demand is likely to be weak in an era when many think the financial supermarket model has failed and should be abandoned. No-one expends much time, money or energy defending a right to do something they don’t want to do anyway. What’s more, there will be plenty of money made by investment bankers spinning-off, selling and acquiring the fragments they are shoring up against the ruins of the toppled giants. Some of these people may actually be the same ones who made fortunes building the giants.
And we’ll all raise a glass to the only saloon in town where it’s never last call: the Wall Street punch bowl.
Citibank: Too Big to Fail? [The Nation]

  • 27 Jun 2007 at 11:40 AM
  • Banks

Rise of the Machines – Citi

Citi is set to buy human replacement toy Automated Trading Desk for $700mm. Automated Trading Desk was born in 1988, fathered by two computer programmers and David Whitcomb, a finance prof at Rutgers. The firm makes money by being quick on the draw, apparently, using these crazy things called computers and algorithms. Even though the firm employs 100 people, it handled 6% of the trading volume in major US stock markets last year, processing over 200 million shares traded per day.
Citigroup In Talks To Buy Automated Trading Desk [Dow Jones via CNN Money]

BearStearnsSubPrimeHedgeFundMerrill.jpgMerrill has postponed the auction of $400mm in assets it seized from the High-Grade Structured Credit Strategies Enhanced Leverage Fund at Bear Stearns, Charlie Gasparino of CNBC is reporting. Merrill and other major lenders to the fund, including Citi and JPMorgan, are in a feel-good asset management “pow-wow” with Bear this afternoon. The fund is expected to make its case that it has a plan to recover from it recent catastrophe in the subprime market.
An announcement on what will really happen to the fund assets is expected later today or tomorrow.
Merrill Lynch Switches Gears []

  • 17 May 2007 at 2:31 PM
  • Banks

Is Rubin Up For Citigroup’s Top Slot?

rubinandlampertcitigroup.jpgEddie Lampert may be betting that former US Treasury Secretary Robert Rubin is poised to take over as chief of Citigroup, according to a former colleague of both Lampert and Rubin. Earlier this week, Lampert’s ESL Investments disclosed that it had accumulated a 0.3% stake in Citi, setting off speculation about Lampert’s intentions. Speculation ranged from notion that Lampert might view Citigroup as cheap relative to it’s banking peers—this came from an unnamed banker who happens to work at Citigroup—to the idea that he might be poised to take an “activist investor” stance and agitate for change. Shares of Citigroup role 4% following the disclosure of ESL’s position.
“Lampert is tight with Rubin. He loves the man. Idolizes him. He may think that Rubin’s about to become a lot more involved at Citigroup, maybe even to take over for Prince,” the source said, referring to Citigroup chief executive Chuck Prince.
Rubin rose to Wall Street at Goldman Sachs before being appointed to the Treasury position by Bill Clinton. He is now the chairman of Citigroup’s executive committee. Early in his career Lampert worked under Rubin when he was an arbitrage trader at Goldman Sachs. This morning’s Wall Street Journal described Rubin as one of Lampert’s “leading role models.”
Yesterday CNBC’s Charlie Gasparino said that there was pressure for Rubin to take a more active role in the management of Citigroup. His position at the head of the executive committee brings him a hefty paycheck—reportedly $17 million—but some have said he doesn’t exercise much responsibility for the management of the bank. At least one banker employed at an investment bank described Rubin as “a relationship guy” whose job mainly involved using the connections he has made during his long career in finance and government to win business for the bank.
Prince’s tenure at the top of Citigroup has not been a happy one. The bank has been under-pressure from investors to change its management and some have even suggested that it spin off some of its constituent businesses. Prince is widely seen as unwilling to fundamentally change the structure of Citigroup.
Will Chorus Grow at Citi? [Wall Street Journal]

Pre-emptive Resignations

citigroupbuilding.jpg“Were you sacked, or did you quit?”
“I’m not sure, actually.”
– Lord of the Admiralty to his aide.
In the last 18 months, almost half of Citigroup’s senior management for consumer operations (and we use the term loosely) has jumped ship. The latest tri-fecta being Faith Massingale, head of Citi’s international cards operation, Ashok Vaswani, head of Asia Pacific, and Joyce Phillips, head of international retail banking. Massingale and Philllips brought in $16 billion in revenue last year. While it’s not news to anyone that Chuck Prince, aside from being named for a popular brand of pasta, has been blamed for the loss of top executives, over management style, coyly termed “differences of opinions concerning company perks”, the Financial Times notes that departures “lower down the chain are more worrying.” One anonymous soul commented that he doubts “whether many investors or even some more board members realize the extent of the losses.” If that doesn’t get Prince’s attention, perhaps the fact that several of the departees have joined noted arch-rival Jamie Dimon, at JPMorgan Chase will put some sauce on.
Citi unit sees exodus of managers [FT]

Let’s Get It, and Several Other Things, Done

citi.jpg Maybe there’s a reason Citi is putting its umbrellas away. Citi announced that it will spend $50bn over the next 10 years on “investments, financings and related activities designed to address global climate change.” Citi claims the sum includes $10bn Citi has already invested in such endeavors. Unfortunately the “Let’s get it done” path to profitability closely mirrors the strategy employed by the underpants gnomes in South Park (Step 1- invest in green tech, Step 2 – [conspicuous silence], Step 3 – profit!), unless “addressing global climate change” involves throwing around all that Saudi money in a way that doesn’t directly choke baby seals.
In other Citi news, the first “Let’s get ‘er it done” spots started running last night (watch here). Seattle-based Publicis West devised the first ad, which unlike Citi’s identity theft campaign, overflows with optimism, violently climaxing in the image of a boy in a raincoat letting go of his mothers hand and venturing off into the unknown, of a $20k a year gated pre-head start program. The ad is just a few 300mph tennis serves away from “impossible is nothing” style ridiculousness. A transcript of the narration in the commercial:
Who first believed in you? [my sponsor]
Listened to your dreams? [my shrink]
Got you on your way? [greenies]
We all need a partner [for tax reasons]
And Citi has the people and expertise to make it all possible [17,000 less of them]
So buy that house [who doesn’t need more debt?]
Merge that company [we’ll even throw in a “buy” rating]
Ask out Sally Krawcheck [seriously, Sally is crazy horny]
Start that business [No really, a social networking site for ferret owners is a great idea, here’s your loan]
Send her to college [Send him to boarding school]
Steal that cable [they keep jacking up the monthly dvr/hd/on-demand rates!]
Build a fortune [1.5% per annum on that $832 from your bar mitzvah]
Take your business global [it’s not an office party, it’s an office “fiesta”]
Plan for the future [Citi is investing another $10bn in flux capacitors]
We all need a partner [redundant, in case you’re Mormon]
A partner that helps turns dreams into realities [or a cursed monkey’s paw]
Citi – Let’s get it done [sounds good, but the guy on the other side of the octagon looks angry]
The money shot is when the Citi arch appears, starting with the word “dreams” and ending with the word “realities.”
Citigroup to spend $50 bln over 10 yrs to address climate change – [MarketWatch]
Publicis, Citi Dare to Dream – [Adweek]

  • 23 Apr 2007 at 3:06 PM
  • Banks

Why Sandy Fired Jamie: The Reverse Hamlet Theory

jamiedimonboxinganddrinking.jpg“Firing Jamie Dimon was the worst thing Sandy ever did,” the investment banker said. It was a glorious Friday afternoon. The weather had performed an April summersault, turning over from winter to what felt like summer almost overnight. It was the kind of weather that inspires people—okay, us—to leave work early and starting drinking with friends. Which is how we found ourselves looking out onto a narrow street in the East Village drinking pints and talking about Jamie Dimon, Sandy Weill, Citigroup and JP Morgan Chase.
“It was over something completely trivial,” the banker said. He definitely had our attention with this remark. Lots of people believe that Citigroup has suffered since Jamie Dimon was let go by his longtime mentor Sandy Weill. And a lot of people have theories about why this friendship soured. But we love hearing all of them. He took the head-off his pilsner while we waited for him to expand. This is an old interviewers trick—using silence to elicit elaboration. His counter-strategy of drinking more was testing the limits of his patience.
He took the bottom off his beer and looked to the bartender for another round. We broke. “Okay, okay. What was it? What was it that got him canned?” we asked.
The next round arrived. We placed a bill on the bar but kept our hand on it. The message in the motions: keep talking and this round is on DealBreaker.
“It was something involving his daughter. Sandy’s daughter,” he said. Our hand came off the bill. This round was definitely on us. What had happened between Dimon and little miss Weill that could get Dimon thrown out of Citigroup?
“Completely trivial. I think Weill wanted his daughter to get a job, some promotion. Dimon didn’t want to give it to her. Thought she was under-qualified,” he said. “The guy I work for was in the room one day when they had a fight over it. When the fight was over, apparently so was the relationship. It was very strange because Sandy and Jamie had this whole father-son thing going on. This was Sandy choosing blood over his more or less adopted child, Jamie. Like Hamlet in reverse. The step-father kills the kid. Or maybe King Lear, with Dimon as the daughter who won’t suck up to daddy Lear.”
We aren’t even going to call Dimon’s office to authenticate this. And certainly not Weill. They probably wouldn’t comment. And if they did comment, it would just be a denial. We’d actually heard this theory before but this was the first time we’d heard it from someone claiming to have anything this close to first hand knowledge of the dispute. It was second-hand knowledge but that’s as close as anyone has ever got to this story.
The next round was on us also. Not as a reward for that story. It was, after all, an old and often told story. But as an enticement for the next one, the one about Dimon’s plans for acquisitions and his meeting with Bear Stearns executives. But that will have to wait for another post.

  • 19 Apr 2007 at 8:48 AM
  • Banks

Cocktails With A Contrarian Investor: Long Citigroup

deviltowninthedove.jpgEarlier 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.