A significant number of the wizards who put together the giant banks now “too big to fail” are having second thoughts. “Sandy” Weill, the key player in setting up Citigroup, for example, recently proposed on CNBC, “we should probably . . . split up investment banking from banking . . . . Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”
He added: “I think the earlier model was right for that time. I don’t think it’s right anymore.” But what is different now?
Earlier there were lucrative deals that ended up making Weill a very rich man, along with many M&A specialists. As a result, though, we now have banks that are bloated, rife with competition, fraudulent practices and incompetence, obviously unable to manage their internal complexity. But did it ever work?
According to The New York Times, the answer is a resounding “No.” “By the mid-2000s, Citigroup was a flop. The business synergies never materialized and the stock was lagging.”
Moreover, “Throughout the 2000s, Citigroup was riddled with scandal. It settled with the Federal Trade Commission over deceptive practices. Its CitiFinancial unit was embroiled in predatory lending controversies before it was fashionable. The bank was an entwined backer of both Enron and WorldCom. Citigroup employed Jack Grubman, who was at the heart of the research conflict-of-interest scandals of the early 2000s . . . . Things got so bad that the otherwise somnolent Federal Reserve actually banned Citi from making any more acquisitions while it sorted out its mess.” (See, “As Banking Titans Reflect on Their Errors, Few Pay Any Price.”)