naked capitalism

Sandy Weill, former chief poohbah of Citigroup, tells us that he had nothing to do with the implosion of the sprawling behemoth. Everything he did was right, it was his successor, Chuck Prince, who screwed up (well maybe he was an itty bitty bit responsible by virtue of recommending Prince). Oh, and it’s Jamie Dimon fault too for being so pushy about succession.

Now in fairness, the story about Weill at the New York Times does give a bit of color to the problems Citi has had, and why they might indeed be attributable to Weill. But this is still a case example of the dangers of the Times’ notion of “fairness”. “Fair” in American media means you tell both sides of the story. But what if some of the arguments made on one side are rubbish? Yes, both sides no doubt have a case to make, but don’t media outlets like the Times at least have a duty to make sure that the arguments presented are valid?

First object lesson:

“Sandy will forever be identified with Citigroup,” says Michael Armstrong, a Citi board member and a former chief of AT&T. “He put everything he had into its creation.”

Yves here. Lordie. Anyone with an operating brain cell will hopefully know to discount the praise of a former board member (translation: someone who got cash and perks directly from Sandy and is thus hardly objective). But Armstrong is a special case. Michael Armstrong was one of the most overrated CEOs in the history of America, and that takes some doing. He was straight out of central casting. He did $105 billion of cable acquisitions, and the only way the math would work was if you delivered telephony via the acquired cable operations. He had committed to doing it in two years, when the needed technology (voice over internet protocol) at that juncture had never been deployed outside a lab. Oh, and if you did somehow figure out how to scale the technology, you’d also need to increase the number of installation staff (and I don’t mean those call center people, I mean the kind who come to your house with equipment attached to their belt) by 50% in that timeframe. My moles (professionals serving AT&T top brass who are on a first name basis with corporate psychopathy) told me that the backstabbing and intrigue at AT&T corporate made the French court look good. I told everyone I knew in May 1999 to sell AT&T. No one listened.

That is a long-winded way of saying an endorsement from Armstrong isn’t just meaningless, it’s a negative indicator.

But this is the part that frosts my cake, where the Times itself repeats Weill PR uncritically:

Mr. Weill built his wealth, status and power by creating what was once the world’s largest bank

The headline picks up that theme: “Citi’s Creator, Alone With His Regrets.” And as we will see later, his regrets are very thin indeed.

Even though this is merely the subtext of the article, it positions Weill. And various studies have found that the more importance you ascribe to someone’s role, the more favorably they are judged (people correctly allow for a degree of difficulty factor).

This is utter bullshit, and I am tired of corporate conglomerateurs being called “creators” or “builders”. You may not like what Sam Walton or Bill Gates created, but their achievements are of a completely different order and have held up better as companies than those of Weill.

And most important, he is inaccurately being given credit for Citibank, later Citicorp, which at the time of the Citigroup-Travelers deal, came out on top, and John Reed rather than Weill was presumed to be the eventual chairman. But Weil mounted a successful coup.

I had Citibank as a client in the 1980s, and even though it was a mess even then, it was an impressive and intriguing mess, like an extremely accomplished actor that regularly goes on binges and tears up hotel rooms. The bank had people who were on average considerable brighter and more energetic than the the commercial banking norm, and also pretty meritocratic by the standards of that era (if you were a minority, a foreign national, or female, Citi was a better career bet than most other places). It was reflexively innovative (not that that made an ounce of strategic sense, Citi would spend the time and money to innovate, and in particular, break new paths on the regulatory front, and the fast followers would get much of the advantage of Citi’s efforts at a fraction of the cost). Citi created the interest rate and FX swaps businesses, and John Reed came to prominence by computerizing Citi’s operations, a massive task (and Citi was a path-breaker again, well ahead of its peers). But the place was freewheeling for a bank and thus in a good bit of disarray. The fact that it reorganized every two years or so was no help (one of the side effects was that it was in many cases well nigh impossible to track the performance of businesses and products over time).

And it was Walter Wriston, not Weill, who had the vision of the Citi that eventually came to be. Wriston saw Citi as a globe-spanning enterprise, with a bank offering financial products of every type to every imaginable customer. His early 1980s strategy was “Five Is”: Institutional Banking, Individual Banking, Investment Banking, Insurance, and Information. Even then, he wanted to be not just in insurance and investment banking, but information based services (and not just Bloomberg imitators; one would have restructured the international trade business, but politics within McKinsey undermined it when the folks at Citi were keen to move it forward).

In other words, Weill and his backers exaggerate his role considerably. Weil was a very talented deal guy, with a real nose for value, a tough negotiator who was far more disciplined than most in his field. He developed a detailed protocol for integrating acquired companies, a critical task that eludes most buyers. So his accomplishments within that field were quite impressive, and he should be given his due there (reader no doubt know that every study every done has found most acquisitions fail, as in destroy value).

Now despite puffing Weill up more than he deserves, the piece reads like an artfully drafted reference letter, where the writer actually is not that keen about the candidate, but uses a deliberate disconnect (say enthusiastic tone versus little substance) to signal his ambivalence. Thus Sandy fans may think the piece was pretty favorable, while a more detached reader could come away with a different take.

Let’s look at some of the substance:

“The dream, the mirage has always been the global supermarket, but the reality is that it was a shopping mall,” says Chris Whalen, editor of The Institutional Risk Analyst, of Citi’s evolution over the last decade. “You can talk about synergies all day long. It never happened.”

Citi’s troubles are well chronicled: a failure to integrate its disparate parts worldwide or to keep tabs on risky investments and free-wheeling operations.

Yves here. These problems were intrinsic to Wriston’s vision, but they got worse and worse as the bank got bigger and bigger. Back to the piece:
And Mr. Weill vigorously defends his record, rebutting critics who say that Citi was an unstable creation.

Judah Kraushaar, a hedge fund manager and former banking analyst who worked with Mr. Weill on his autobiography, said that Citi’s problem wasn’t that it was unmanageable, but that it lacked enough good managers — and that Mr. Weill was a good manager.

“When he left, the company had all the hallmarks of how Sandy ran a business: it was lean; it didn’t have a bloated balance sheet,” says Mr. Kraushaar. “Had he picked a different successor things could have turned out very differently.”

Yves here. The use of this quote, in context, comes off as a subtle bit of hatchet work, since it creates the impression that it is hard to come up with objective sourcesthat are positive about Weill’s record. Note the first was Armstrong, who is beholden to Weill. Kraushaar is also in his orbit.

The article does have lots of sympathy building patter:

One wall is devoted to framed magazine and newspaper articles chronicling his career. A Fortune magazine clipping from 2001 declares Citi one of its “10 Most Admired Companies.”

On another wall hangs a hunk of wood — at least 4 feet wide — etched with his portrait and the words “The Shatterer of Glass-Steagall.” The memento is a reference to the repeal in 1999 of Depression-era legislation; the repeal overturned core financial regulations, allowed for the creation of Citi and helped feed the Wall Street boom.

Elsewhere in Mr. Weill’s office, a bust honors him as Chief Executive magazine’s “C.E.O. of the Year” in 2002. There are pictures of him with world leaders like Nelson Mandela, Bill Clinton, Vladimir Putin and Fidel Castro. There is also one of his humble childhood home in Brooklyn — a reminder of how far he has come.Elsewhere in Mr. Weill’s office, a bust honors him as Chief Executive magazine’s “C.E.O. of the Year” in 2002. There are pictures of him with world leaders like Nelson Mandela, Bill Clinton, Vladimir Putin and Fidel Castro. There is also one of his humble childhood home in Brooklyn — a reminder of how far he has come.

Yves here. This sort of thing puts me off, but I imagine some take it at face value. And we have this:

Starting in late 2007, he began approaching some members of Citi’s board about returning to help with its recovery. He tried first when the board was looking to replace Mr. Prince as C.E.O., and later after Vikram Pandit got the job. At the time, Mr. Weill imagined that he would be welcomed. “I had 50 years of experience,” he says. “I think I was a pretty good student of the markets, and the business. I had a good feel of things. I felt that just because I retired didn’t mean my brain went to mush. Maybe I could help.”

No one responded to his offers.

The rejection stung. Citigroup had for so long been central to his life. It was hard to accept that he had no control or influence over it anymore. “It’s very hurtful. Even though he says, ‘No, no, it’s fine,’ ”says Joan Weill, his wife of 54 years. “I know him. The company means so much to him. It was his baby.”

Yves here. The idea that he’d be welcomed back when the bank was in crisis strikes me as delusional, since the story gives no indication that he was still close to the movers and shakers at the bank (that sort of thing happens seldom, most often when board members are still in close contact with the old CEO) but again, there could be more to this that the NYT presents.

The story also gives his defense of his use of a Cit private plane to go on vacation in Mexico (he was permitted use as part of a deal to terminate a consulting contract). He was unhappy at being depicted as an out-of-touch banker…but this is a man worth hundreds of millions of dollars who IS an out of touch banker! Even though he was entitled to use the plane, this was a tone deaf move. And per our opening comment, Weill does not admit error:

Mr. Weill says that the model on which he built the company was not at fault, that it was the management that failed. For this, he accepts partial responsibility.

“One of the major mistakes that I made was my recommending Chuck Prince,” he says of his handpicked successor, who ran the company from 2003 to 2007. Mr. Weill blames Mr. Prince for letting Citi’s balance sheet balloon and taking on huge risks.

Yves here. Please, this is NOT taking responsibility. This is the BS that MBAs are taught to dole out. “Tell me your biggest fault.” Standard reply; “I am too competitive.” Even better: “I am too hard on myself.” Earth to base, or in this case, New York Times: Blaming Chuck Prince and claiming that it is “a major mistake” is NOT accepting responsibility, it is an acceptable way to assign blame. Back to the story:

In addition to initially supporting Mr. Prince as C.E.O. — even though Mr. Prince had never run a bank — Mr. Weill also pushed out Jamie Dimon, a well-regarded banker who now runs JPMorgan Chase. And Mr. Weill personally recruited Robert Rubin to Citi after Mr. Rubin stepped down as Treasury secretary. Mr. Rubin, who has since left Citi and declined to comment about his tenure there, has been criticized as failing to help rein in the bank’s excesses.

Mr. Weill says he has no regrets about hiring Mr. Rubin and wishes that things with Mr. Dimon had worked out differently.

The story ends on a mixed note:

Analysts say that managerial problems plagued the Citi empire and that its board, which might have imposed some order, became little more than a rubber stamp during the Weill era. “Sandy surrounded himself with yes men,” says Mr. Whalen. “He never wanted anyone second-guessing him.”

THESE days, Mr. Weill keeps busy with charities and his personal investments…

Such giving shows that Mr. Weill remains in far better shape than most other Citi investors. Although Forbes bounced him from its list of the 400 wealthiest Americans — the magazine once estimated his net worth at $1.5 billion — he still lives regally: a $42 million apartment in Manhattan; homes in Greenwich, Conn., and the Adirondacks; and a yacht.

Citi, meanwhile, has recently shown some signs of improvement….But for so many who depended on Citi, the bank has caused irreversible damage. It’s a reality that Mr. Weill says pains him.

“Look what it’s done,” he says. “It’s hurt the dreams of so many people.”

Notice the distancing: “it’s done…it’s hurt”. It must be nice never to have to say you were one of the perps.