Does former Citigroup CEO and Citigroup-as-a-monstrosity defender Sandy Weill read hedge fund manger Tom Brown’s blog? Hard to say (he does read DealBreaker, so maybe). TB apparently thinks so, and today offers Weill a slightly calmer, more rational plan for what he thinks should happen to Citigroup. For those of you who haven’t been keeping up, on Tuesday, Brown called C a “supersized jackalope,” and in response to Weill’s assertion that “Being large and having a strong balance sheet enables a company to withstand the financial turmoil that happens every now and then in global markets” wrote:
Why Weill thinks that investors would take comfort in that statement, I can’t begin to understand…Citi has gotten so big, and lumbering, and broadly diversified that it simply can’t generate meaningful organic growth anymore. The law of large numbers won’t allow it.
If all I wanted from my investment was an instrument that would “withstand financial turmoil” I’d simply buy Treasury bills and be done with it. Presumably Citigroup’s shareholders want something more than that.
After being shot with a tranquilizer gun, Brown sat back down at the computer and, in his own words, decided to meet Weill—and Prince, since, for the most part, he’s in charge—“halfway,” presupposing that Weill y Prince have any interest in moving an inch. Less drastic than completely breaking up the bank, Brown is now advocating for partial IPOs of Citi’s various business, with the parent company owning 80% of Citicorp, Salomon Brothers, Smith Barney and CitiGlobal, and the remaining 20% trading in the public markets.
The advantages, according to Brown, would be that:
+The people who run each unit would have a publicly traded entity whose value, for better or worse, would be directly affected by the results of their efforts. So if Salomon shoots the lights out, for instance, the results in the stock market wouldn’t be canceled out by a weak year at the commercial bank. Rather, the price of the Solly stub would presumably zoom.
+A partial IPO of Citi’s business would be a powerful force to counteract the “conglomerate discount” that so often penalizes the valuation of Citi’s stock relative to the stocks of the companies it competes against.
+Separately traded stocks could be a potent check on some of management’s nuttier capital-allocation schemes.