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October 16, 2012

Citi's CEO is gone; now break up the bank


Citi’s stock is trading below book (about 60% of book in fact) like the other too big to fail financial conglomerates misnamed “banks.”  They are not only too big to fail, but they are too big to manage.  That is what the market is telling them.  Citi’s surprise market jolting announcement of the CEO’s resignation proves that as well:  they can’t even manage a smooth transition in the CEO office, never mind a sprawling worldwide bank with almost $2 trillion in assets.

Anyone not invested in Citi’s current structure would break up the bank and its many business lines, create separate solid performing businesses and unlock investor value.  The side benefit of doing that, if done right, would also reduce the risk of that bank to the financial system and economy.  It could become the right size to run and manage as well as the right size to fail.

New CEO Corbat could be a real leader if he did that.  Focusing on shareholder value, traditional banking activities and right-sizing the bank could change the discredited name of Citigroup into a model for a new generation of responsible banking.  If he becomes just another too big to fail bank CEO fighting financial regulation while trying to set records for bigger bonuses, then he’ll ultimately fail not only his bank but also the American people.



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