Insights into Citibank’s fall

DFN: Very interesting OpEd piece the The Street Dot Com. Insightful regarding the history of fall of Citibank. Is the right management in place to turn it around?

Weill, Citigroup’s Fall Intertwined
By Eric Jackson 01/06/10 – 06:01 AM EST

Sandy Weill, former chairman and CEO of Citigroup(C Quote), is disappointed.

Weill, who was the architect of the financial supermarket concept, the builder of the global bank on which the sun never set, and the main proponent of repealing the Glass-Steagall Act which allowed banks which were too big to fail, went public this past weekend with his beefs on how he’s been portrayed for contributing to Citi’s failure. His arguments are long on sour grapes and short on details.

In his interview over the weekend with the New York Times, Weill pointed out that Chuck Prince (his successor) and John Reed (his co-CEO following Citi’s merger with Travelers) were more to blame for the bank’s problems than him. Weill also blamed a lack of management quality, for which he agrees he’s partly to blame, for Citi’s undoing.

Weill used the interview as a vehicle to try and rehabilitate his image. His main points are that (1) Citi will always be his baby and he’s taken the bank’s fall from grace very hard; (2) he was an important person in shaping Citi but he’s only one person and he left the top job in 2003 and the chairman’s role in 2006 before problems emerged; (3) he’s been a major benefactor in his post-Citi years; (4) despite accusations that he drove Jamie Dimon away from the bank in 1999, he wasn’t ready to retire and Dimon only would stay if he got the CEO job; and (5) Weill has tried to help Citi since trouble broke out but has been rebuffed by the board.

Weill is right that more people than he decimated this once proud bank. When he left the chief executive role in 2003, there were many decisions left to be made which ultimately were critical to its problems later. However, his attempt to absolve himself of responsibility for Citi’s downfall is unconvincing and makes him appear even less sympathetic than before he spoke out.

Weill undoubtedly helped create the company, culture and lack of management depth that contributed to its imploding, even if he was seven years out of the top job. Portraying himself as an innocent bystander is disingenuous.

Of the two men he points to as the main culprits of Citi’s problems, Prince was his hand-picked successor and Reed was out of the company much longer than Weill. What’s more, Weill provides no reasoning for why these men were at fault.

Aside from leaving himself blameless, he also refuses to point the finger at Robert Rubin — whom he recruited — and anyone on the Citi board, which Weill’s interviewer later criticizes for being a bunch of "yes men" around Weill.

I have no doubt that Weill is angry and embarrassed at what’s happened to the company he built. Who wouldn’t in his shoes? But, if you’re going to lash out against lower-level management and say that buying the most toxic mortgages didn’t happen under your watch, you should provide an alternative approach which, had you been in charge, would have kept Citi on top. On this, Weill is silent.

Perhaps Jamie Dimon was a hot-head, and wanted the brass ring too soon. However, even if he’d presented Weill with an ultimatum as Weill suggests, there could have been ways to keep him in 1999. Weill should have agreed to a date that he’d retire (even four years off) and promised Dimon the top job. At that stage in Dimon’s career, such an offer would have been compelling (and similar to a timeline he agreed to before taking over the Chase CEO job after Bank One got bought).

What’s more likely with Dimon is that Weill simply would not agree to a date he’d leave Citi. He obviously didn’t think his management talent was so bad and let Dimon walk.
Weill is right that Citi’s board should have at least heard his views on the company in 2007. Even though I believe he had a lot of ego tied into his views of the company that colored his judgments, he knew that bank better than any of those directors and most of the current Citi executives.

With the rise of "independent directors," there’s been a push to limit any former CEO to have influence in board deliberations. Although there are risks of meddling, it seems ludicrous to limit any contact with an experienced executive to at least hear him out.

No one person or decision doomed Citi. Yet, Weill slapped this company together in a series of acquisitions. He recruited Rubin to bless a strategy of emulating Goldman by taking lots of risk without commensurate risk management. He brought in cozy board members, who later asked few tough questions of Weill’s chosen successor.

If Hugh McColl wants to come out and attack Ken Lewis and his other followers who fulfilled his vision at Bank of America(BAC Quote), or David Komansky wants to attack Stan O’Neill for what happened at Merrill Lynch, that’s fine but you’ve got to have an explanation for what the alternate plan would have been.

The reality is that all three of these companies were Titanics, where the new captains were just steering the ship on the same course it had been on before they got there.

The seeds that sowed Citi’s failure were the ones that led to its early success, 10 and 20 years earlier: a focus on growth without attention to details and risk management. Under the surface of a great story at Citi was little depth holding it together, and the person most at fault for that is Weill.


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