Vikram Pandit Rejects CitiSachs?

Yesterday's news is that Goldman Sachs (GS) approached Citigroup (C) last month to propose a merger. Citigroup CEO Vikram Pandit rejected the idea from Goldman Sachs CEO Lloyd Blankfein, the FT said, citing people it didn't identify.

The deal, which was to have been structured as a takeover of Goldman by Citigroup, would have led to the firing of thousands of workers in the investment banking units of the two companies, and the loss of several senior executives, the newspaper said.

However, uniting Goldman’s strengths in risk management, advisory services and proprietary trading with Citi’s large retail deposit base and huge corporate client network could have created a powerful financial giant.

Industry insiders argue that such a deal could have also benefited the US financial system by creating a counterpoint to JPMorgan Chase (JPM) and Bank of America (BAC), two institutions that have significantly expanded during the recent raft of government-induced rescue deals.

The tone of the article was that Citi rejected the proposal out of hand. Now, this is odd for a couple reasons. First, we know Citi has the largest exposure to the current mortgage market problem. Second, it can't be in that strong of a financial position as its proposed takeover of Wachovia (WB) was not able to be accomplished without FDIC assistance. Wells Fargo (WFC), on the other hand, walked in and did the deal on its own.

So, one has to wonder why the proposal was not even considered? Perhaps the "culture" differences are just so great, consolidating them would have been too difficult. But, if Goldman thought it was doable, why not even consider it?

This raises even more questions about Citi. Goldman is known as the class of the industry and if Citi won't even consider a tie-up with them, then what is it about Citi that makes it so prohibitive? Is it a fear of Goldman merging and then taking over? If that is the case then wouldn't that be the best for Citi shareholders in the long run? Isn't that what Pandit & Co. are really there for?

It isn't the fact that Citi turned the overture down that ought to concern people, it is the lack of consideration of the action that ought to.

Disclosure: None

Comments

[James Wilson:]

They have been trying to hurt Citi for 3 months using every tool and anal yst around to talk Citi down.
GS, JPM and others want to keep the focus of the shrt sellers on Citi and off how weak they are. We have seen this in many down markets.

The weak always trying to deflect attention away from themselves.

2008 Oct 28 08:06 AM

[Redman:]

Maybe Citi had it's eye on Wachovia at the time. They are also smiting from their complete structural breakdown and "pride" surely had it's place in the scheme of things. When you get right down to it...Citi is right back where they started under John Reed..albeit with a slightly higher stock price.

2008 Oct 28 09:09 AM

[BamBam:]

Pandit needs to buy a deposit base at firesale prices, not a bunch of overpaid I-Bankers in search of a deposit base.

2008 Oct 28 09:56 AM

[Philly Jim:]

With feuding like this in the banking industry, who can you trust for an unbiased analysis of fundamentals other than yourself?

2008 Oct 30 12:36 PM