Citigroup Starts to Break Apart

Now that everything has blown up in their faces, Citigroup (C) is taking the first steps in breaking itself up. The WSJ reports:

Citigroup Inc., under pressure from the federal government, took a big step toward breaking up the financial supermarket, entering discussions to spin-off its Smith Barney brokerage unit into a joint venture with rival Morgan Stanley, according to people familiar with the talks.
News of the talks, which could result in an agreement as soon as next week, surfaced Friday afternoon as Robert Rubin, a senior counselor and director at Citigroup, announced his retirement from the New York company. The former Treasury secretary brought his high profile and respectability to Citigroup, but his reputation was diminished by his role in the financial turmoil at the bank.

This is long, long overdue. In fact, some of us were telling them to break long before the troubles started:

The financial supermarket idea doesn’t work. Repeat after me, Mr. Prince, it doesn’t work. I know, it sounds good on paper, but people don’t do their finances that way. They never have and they’re not about to now. This was just a nice idea to justify some lousy acquisitions many, many years ago.
Eddy’s rule of business #15,783: No matter who is put in charge to execute a dumb idea, when it starts to fail, people will blame the execution, not the dumb idea. Lots of people are ready to toss Chuck Prince overboard. Fine, but he’s not the problem.
Twenty-five years ago, Sears bought Dean Witter. They had this great idea. Stick brokerage offices in the stores! Well, it didn’t work and Sears eventually sold Dean Witter. Later Dean Witter bought Discover and turned it into a hugely profitable credit card business. Then Morgan merged with Dean Witter, and made a whole lotta money.
Guess what Morgan is spinning off now? Discover!
Think about it, Chuck. Split Citi up.

Posted by on January 10th, 2009 at 3:11 pm


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