ResourceWise

Citi's Cities

In addition to Poland and Mexico, Citi has well established and successful Retail Banking businesses in over 50 countries around the world including Argentina, Australia, Belgium, Brazil, Canada, Chile, Czech Republic, Egypt, Greece, Hong Kong, India, Japan, South Korea, Malaysia, Philippines, Russia, Singapore, Taiwan, Turkey, UAE and the UK. The US centered sub-prime crisis and the subsequent collapse of financial markets have obscured the underlying strength of Citi's global franchise. As they get their act together under the Citicorp banner and put the customer back at the center of their business model, I hope they will re-establish their global position as the world's local bank - a position they lost to HSBC after their disastrous merger with Travelers in 1998.

Outlandish CEO Pay: How to Fix the Problem

It is reasonable to be angered by these examples where CEO pay is clearly unrelated to performance. However there is no silver bullet (e.g. CEO pay caps) that can prevent future melt downs of the markets. Reform is needed across all aspects of the market. Some of the many areas to examine:

1. Establish a clear link between pay and performance for all employees not just CEOs, where performance covers short term results as well as the actions taken to protect the longer term health of the franchise. Pay variable compensation i.e. bonuses based on net income not on revenues.
2. Risk rate revenues and treat the higher risk revenues to higher capital requirements.
3. Separate customer funds from bank funds (revive some form of the Glass Steagall Act, 1933).
4. Examine the social usefulness of activities that take place in the financial markets e.g. short selling, spread betting, high frequency trading, and tax arbitrage. Ban those activities that can cause harm to others.
5. Examine product structures that enable banks to profit from risk taking and pass on all risk to third parties (e.g. to customers, counter parties and tax payers). The cost of risk needs to be fully borne by the originator of the transaction and should not be passed on to other market participants without their specific agreement.
6. Bring all market participants (e.g. banks, hedge funds, private equity funds, insurance cos. etc) onto the same level playing field - with clearly marked boundaries, switch the lights on and let the games begin – in full sight of the regulators.
7. Simplify regulations, consolidate regulators and provide them with massive teeth.
8. Restrict gambling to clearly designated and regulated casinos – not the stock/bond/currency/co... markets.

It is clear to even a casual observer that many aspects of the current markets need substantial redesign. Let’s do that instead of demonising individuals who have just tried to take advantage of a crooked table with loaded dice.

Citigroup Stock Drama: Capitalist Conspiracy or Profit Pursuit?

Keith, many thanks for a very enlightening explanation for roller-coaster ride that the Citi stock price has been having over the past months. Would you mind taking your explanation further, e.g. if hedge funds and other investors make a lot of money through arbitrage, who loses this money – and therefore who picks up the tab? Does this activity add to destruction of shareholder value? Does this activity have any wider purpose or value to society? If seems to me that the sharp practices (even though they may be considered as legal under current law) that got the whole world into the mess we find ourselves in, continue to this day. Unless the rules-of-the-game change substantially the 2-3 trillion dollar global stimulus (paid for by the world’s tax payers) is just money wasted.
Please provide your perspective. Thanks

A Scenario for a U.S. and Global Recovery, Part 2: Banks

Alexandre, I agree with your assessment. The shadow banking system and all the players involved in it must be brought out of the shadows and their business models examined in the bright sunshine viz., how do they make money, what purpose do they serve for the economy/financial markets, where is the opportunity for conflict-of-interests, what leverage do they create - thereby adding to the volatility and instability of the system. Without these reforms, we're condemned to serial destruction of value for the investor and huge profits for the speculator. We have to separate the stock markets from the casinos and clearly label them for what they are. Then individuals can choose to participate or not with a clearer view of the choices they make.

The Elimination of the Consequences of Bad Behavior Continues

Actually the bad behaviour was when individuals in banks took massive risks with the bank’s money so that they could get massive bonuses. These ‘masters of the universe’ – even if they lost their jobs as a result of their egregious actions are enjoying the fruits of their pillage.

On the other hand if a bank recognizes the difficulty their customer is in – due to losing his job, and makes some adjustment to try and keep the mortgage going, that is just common business sense.

Jim Rogers: It's Better To Let Financials Fail

User366653 has taken the trouble to spell out an overview of his plan, so should be lauded for it - whether one agrees with every detail or not. Other commentators need to move beyond slogans e.g. nationalize, wipe out existing shareholders, moral hazard, etc and should actually explain how their plan will work, what risks it would mitigate and what the long term prognosis will be.

Citigroup: The Death of Buy-and-Hold Investing?

Buy-and-hold has been in a long drawn out death-spiral for many years. Ask any trader and they will tell you that they don't care if the market is moving up or down, as long as it is moving! Even the buy-and-hold investors like pensions funds lend their shares to speculators, so that they can 'short' stock, create volatility and make money. Where do the billions of dollars 'made' by these speculators come from? Without major reform of these markets, buy-and-hold cannot survive.

Nationalization, By Any Other Name

This is not nationalization - it is a public private partnership, a temporary arrangement to assist in the stabilization of systemically important financial institutions. Shareholders have been 'diluted', but not wiped out. I agree with Randy Miller that Wall Street needs to lose its licence to be a Casino, so that investors can feel confident that their investments will not be siphoned off by unregulated gamblers.

Bank Nationalization: The Bigger Picture

This article should be read - carefully, by the quick-fix junkies who somehow believe that wiping out existing shareholders is the way to attract future shareholders. Current stock prices are not an accurate reflection of the value of a company like C that has well established businesses in 100 countries with over 200 million customers. We don't need hasty remedies that support the agendas of people who benefit from the short term volatility in share prices while having no interest in the longer term success of those companies.

Bank Nationalization: It's No Panacea

Rick, yours is a thoughtful rebuttal of the 'nationalization' argument. There is no quick fix. We have to work our way out of these difficulties by keeping the longer term well-being of the financial system in mind.

More on Pay Caps and Populist Rage

Compensation in these companies (especially investment banks) has de-linked from performance for many years. So fixing a cap on salary for the most out of control banks is not unreasonable. It helps manage expectations, calm the talent market and provide the institutions time to align their comp programs and practices with the long term prosperity of their respective organizations. Banks should grasp this opportunity with both hands and build sustainable programs. Just because a politician came up with the idea doesn’t automatically make it bad. Any value investor will know that it makes sense.

Citi's Pandit Is 'Forgoing' His Bonus: Was There an Alternative?

Tom, you have touched on a very important nuance of the bonus culture. When bonuses become ‘deferred compensation’ instead of ‘profit sharing’ it is easy to understand why there is a sense of entitlement that these gentlemen will ‘forgo’. As you know, in financial services businesses the ‘masters of the universe’ model pays bonuses based on league tables and deal pipelines – neither of which have a direct correlation to profits. It underscores the yawning gap between where we are and where we need to get in reforming practices in the financial services – particularly because of the systemic risk they pose to the well being of society. Maybe ‘forgo’ is a start!

Who Owns Chrysler's Headquarters?

This ‘financial engineering’ is not unique to Cerebrus. This way of making money by extracting value from the ‘family silver’ owned by others is the standard modus operandi of a vast swathe of market players. It reflects the cancer eating into the financial well being of society and needs systematic treatment – surgery, chemo therapy, radiation. Regulators need to be able to shine a light into the darkest corners of the markets in order to re-build the confidence that has been destroyed by market participants running amok.

Cramer's Mad Money - Return to the Forbidden Citi (12/19/08)

Miriam, you wrote: “Pandit was the architect of Citi’s turnaround in 1991”?! I wasn’t aware of this historical ‘fact’. Even though I have followed Citi’s fortunes since 1988, the first I heard of Pandit was when he sold Old Lane Partners to Citi for $800 million in 2006 and then liquidated the fund in 2008.

Why Citigroup Imploded

Citigroup was an accident waiting to happen since the merger of Travelers and Citicorp in 1998. The ‘boring’ global Citicorp that was focused on customers, not on Wall Street joined up with Travelers – a company made up of the asset stripped carcasses of many second tier (sub-prime oriented) financial companies. The two cultures clashed violently which led to systematic destruction of shareholder value – even though the stock price kept going up!
Traveler’s management wrested control and the resultant dysfunctional company stumbled repeatedly over the past ten years. Every time a major stumble occurred there was a wringing of hands, firing of the ‘culprits’ but no change in the culture – cabals continued to rule, crushing dissent and appointing people to roles for which most were visibly unqualified. In fact the main qualification was that you were ‘trusted’ by Sandy and his inner circle – nothing else seemed to matter.
The same culture still prevails – only some of the people in power have changed. It’s going to be a long haul back, provided the leadership actually make the effort to modernise management practices to represent the current century!