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Splitting Citi in two
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Added by
apesphere on 17 Jan 2009
From: www.google.com
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| Image courtesy sheikh.tuhin via Flickr |
I have been covering Citi's progress (and regress) these last few years on corporate responsibility issues.
The financial supermarket model created by former group head Sandy Weill gave rise to numerous regulatory headaches. The racey culture of Salomon Smith Barney seemed a bad fit for such a major banking group that above all things needed to be trusted.
Embedded conflicts of interest gave Citi unwelcome headlines following the technology bust, and it seemed to me then that the business model on which the supermarket idea was based only made sense if conflicts of interest were permitted to run wild.
The group was so powerful that the subsequent CEO Charles Prince described it as a "quasi-public institution" and regulators and commentators everywhere classified as "too big to fail". Yet there was this huge structural flaw that based the group's success on embedded conflicts. It was difficult to see how such a powerful institution would be brought to its knees, yet the business model seemed unsustainable.
In retrospect I would speculate that the reining in of its more egregious business practices created a huge mismatch between earnings expectations and Citi's ability to deliver. The lending binge was the group's way out, but it merely delayed the inevitable demise of the financial supermarket idea.
The financial supermarket model created by former group head Sandy Weill gave rise to numerous regulatory headaches. The racey culture of Salomon Smith Barney seemed a bad fit for such a major banking group that above all things needed to be trusted.
Embedded conflicts of interest gave Citi unwelcome headlines following the technology bust, and it seemed to me then that the business model on which the supermarket idea was based only made sense if conflicts of interest were permitted to run wild.
The group was so powerful that the subsequent CEO Charles Prince described it as a "quasi-public institution" and regulators and commentators everywhere classified as "too big to fail". Yet there was this huge structural flaw that based the group's success on embedded conflicts. It was difficult to see how such a powerful institution would be brought to its knees, yet the business model seemed unsustainable.
In retrospect I would speculate that the reining in of its more egregious business practices created a huge mismatch between earnings expectations and Citi's ability to deliver. The lending binge was the group's way out, but it merely delayed the inevitable demise of the financial supermarket idea.
Andrew Newton is the author of The Handbook of Compliance: Making Ethics Work in Financial Services
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