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 firstname.lastname@example.org. 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]