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VIDEOThe Bad Boys of Business: Citigroup
By
Scott Reeves Sep 03, 2009 9:50 am
Banking on bad press.
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Citigroup (C) may have been too big to succeed in a rapidly changing business environment.
Once upon a time, long before the Troubled Asset Relief Program was invented, Citigroup turned itself into a megabank that posted billions in earnings each quarter from its worldwide operations in mortgages, credit cards, trading, and merger advice.
Mortgage-backed securities punched a hole in the business model, and top managers were slow to recognize the risk. The bank’s varied operations and what some called its “Balkanized” management made it difficult to take corrective action quickly. All the bank lacked were adequate controls, accountability, and the right people atop a vigorous corporate culture. As the company fell apart, many mistook lack of smarts for mendacity.
Nevertheless, the company made sense when Sandy Weill merged Travelers Group with Citicorp in 1998 to create what was ballyhooed as a “financial supermarket.” In retrospect, it just looks stupid, greedy, and a trifle evil.
In June, Citigroup lost the status of being of a component of the key 30-stock Dow Jones Industrial Average. In what may be the final kick down the stairs, Travelers Companies (TRV) replaced it on the index.
Getting bounced from the DJIA is a public relations setback, but a minor one, because the average is a broad gauge of the market -- not a key factor in making investment decisions.
“Being removed from the index has no impact on the company strategy nor our efforts to return Citi to sustained profitability,” says Alex Samuelson, spokesman for Citigroup. “We continue to build on the progress of the last 18 months, focusing on our strategic priorities, which are generating long-term profitability, managing, and optimizing the businesses of Citi Holdings and remaining focused on managing costs and maintaining our positive operating leverage.”
On the way down, Citigroup pumped out big, billowy clouds of optimism and sometimes acted as if it weren’t challenged by changing circumstances.
Last January, with its stock trading at about $3.67 a share, Citigroup spent $50 million on a new private jet after taking $45 billion in taxpayer funds to stay alive.That wouldn’t be on the top of anyone’s “to-do” list if (a) they’re sane, (b) have a rudimentary understanding of public relations, and (c) give a damn.
Citigroup’s decision to buy the new jet may not be the catastrophe it appeared to be because the company ordered the plane two years ago when it was flush. But timing is everything in love, hitting the curveball and public relations. Citigroup apparently forgot, if it ever knew, that when you’re kept alive with taxpayers money, it’s smart to buy a coach ticket on a commercial flight to at least create the image of frugality.
No positions in stocks mentioned.
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