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Tom Brown Does Not Get Hint, Offers Sandy Weill A 'Plan B' For Citigroup


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.

Weill (Prince, Prince), your rebuttal?
Citigroup’s Breakup: How About Plan B? [bankstocks .com]


Vikram Pandit Not Feeling Sandy Weill's Break-Up The Banks Call

About a month ago, retired Citi CEO Sandy Weill set his alarm an hour early, got out of bed when it was still dark, ate a piece of rye toast, told Joan he'd see her when he'd see her, took the elevator downstairs to wait for the car that drove him out to Englewood Cliffs, and went on CNBC to proffer a small suggestion to Wall Street: break up the big banks. Perhaps you heard about it? Not many people were receptive to the notion of Weill giving them advice on the matter, which may or may not have had something to do with the fact that in his day, Weill couldn't get enough of big banks and was the man responsible for cobbling together the behemoth known as Citigroup, an institution so huge it can barely support its own weight. The response by most, in fact, was "Shut it, you old bag." But what about Vikram Pandit, the lucky guy who inherited the place? What did he think of Weill's tip? After giving it some good thought-- really and truly considering it-- for a few weeks, he's decided to take a pass: Citigroup’s chief executive has knocked back the idea of big banks being split up after calls from people such as his predecessor Sandy Weill. But not for the reasons you might think! Pandit actually agrees with Sando because if you think about it, Citi's already been broken up and is basically the bank it was before the merger that resulted in it needing firefighters to use a giant pulley system to lift it out of bed and get around every day. Pandit said Citi, formed in Mr Weill’s time with mergers such as the acquisition of Travelers in 1998, had already gone back to the basics of banking, and aside from some global markets businesses had sold most of the units from that deal. “What’s left here is essentially the old Citicorp,” he told the Financial Times. “That’s a tried and proven strategy. Why did it work? Because it was a strategy based upon operating the business and serving clients and not a strategy based on dealmaking. That’s the fundamental difference.” So we're all on the same page here. Citi Chief Rejects Calls For Bank Splits [FT]