The Hanger-On

In New York Magazine, Duff McDonald looks at how Chuck Prince still has a job.

It’s unlikely the two have ever met, but Citigroup chairman and CEO Chuck Prince and Yankees relief pitcher Luis Vizcaino have something in common. Consider Game 2 in the recent American League divisional playoff series, when Vizcaino was brought into the game in the bottom of the eleventh, after Joe Torre had burned through his best relievers. Nervous Yanks fans could only watch in stupefaction as Vizcaino loaded the bases just in time to face the Indians’ top slugger. How was it that with everything on the line, this was the guy holding the ball? The same is asked about Chuck Prince, who gave up the Wall Street equivalent of a grand slam when Citigroup reported a third-quarter loss of $5.9 billion. The company’s share price now rises when there’s bad news in the hopes that it will lead more quickly to his departure. But despite calls for his ouster from all over Wall Street and from Jim Cramer in this magazine, he’s still very much in the game.
What the critics fail to fully consider is, who would replace him? With no obvious choice from within—and no eager prospects from without—the bank is suffering from what one might call the Vizcaino Condition: Watch and pray he doesn’t do half as badly as everyone expects.

I actually talked with McDonald a few months ago about Chuck Prince and Citi. My take is that human nature will always blame a bad plan’s failure on execution, first, and the idea itself last. The reason Citigroup is struggling is that the company, as presently constructed, doesn’t make sense and it should be broken up.
The financial supermarket idea sounds great on paper but it just doesn’t work. It never works, and Citigroup will keep learning that lesson. People can blame Prince all they want, but it’s the idea that has to go.
This year is the 20th anniversary of the movie Wall Street, the big crash and the book Bonfire of the Vanities. How many of today’s first-year MBAs would know that Sherman McCoy’s firm was based on Salomon Brothers? There’s a name that’s completely disappeared, but imagine if Citigroup revived it. Spin it off! According to the most-recent 8-K, Citigroup has assets of over $2.3 trillion. Why so big?
Earlier I pointed out that Citigroup’s Management Committee has 125 members. Is that really needed? The last papal conclave had just 115 members. Sure, both entities have global operations and strong brand names. (Granted, the analogy break down once we come to Bob Rubin, but you see my point). I failed to see the advantage of having a company that’s so large.
Let me also add that I think Sallie Krawcheck will easily become Prince’s replacement. Unfortunately, I don’t think she’ll have any more success.

Posted by on October 16th, 2007 at 1:15 pm


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