November 25, 2008

Citigroup, and the limits of aggression-driven expansion

The New York Times on Citigroup, November 21, 2008:

"To some extent, Citigroup’s fortunes have declined as the storm in the broader financial industry has grown angrier.

Many analysts argue that the globe-spanning conglomerate, largely built by Sanford I. Weill, had never really worked as a cohesive unit. Different divisions have consistently battled, and promised synergies between units have rarely emerged."

[See my December 13, 2005 post: "Does synergy scale?]

" 'They never spent the time, the money or the energy to integrate all of the businesses,' said Meredith Whitney, analyst at Oppenheimer. 'And so the credit card business speaks Mandarin while the mortgage business speaks Cantonese. It’s not a functional family. And because it’s not a functional family, it’s extraordinarily expensive to operate all the separate businesses, and you don’t get any of the advantages.'

Many of these problems were masked during the credit boom this decade. But with the financial crisis in full swing, the bank’s failure to unite its empire has become more exposed than ever.

'A lot of the issues facing Citigroup are not new issues, they have simply grown greater in severity,' said Michael Mayo, an analyst at Deutsche Bank."

Definitely not new issues.

Here’s what
Bigger Isn’t Always Better said in Chapter One about Citi in 2006:

Citigroup fueled its ascendancy to the position of the world's largest bank by replacing an emphasis on controls and coordination with a hyperaggressive, push-the-ethical-envelope corporate culture.

Known by some Wall Street analysts as the bankers with claws and fangs, Citi's executives are now working overtime to repair the damage to its reputation caused by money-laundering scandals in Japan, questionable bond-market trading practices in London, and allegations of conflicts of interest during the tech-stock boom and bust.

Now facing a regulatory environment less tolerant of the behaviors that once drove Citi when it was one of Enron's top banking partners, this mega-institution may have reached the limits of aggression-driven expansion. Citigroup … set challenging profit-expansion goals, but failed to put in place a strong framework to guide how they were to be met.


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