Citi Ex-CEO Prince: Blinded by Hubris

By Eric Jackson

04/28/10 - 06:00 AM EDT

Stock quotes in this article: C

A few weeks ago, the day after he testified in Washington before the Financial Crisis Commission, I heard former Citigroup (C) CEO, Chuck Prince, speak to a friendly business audience at a closed-to-the-business-press luncheon. I went into the meeting thinking Chuck Prince was a fool; one of the poster boys for the out-of-touch Wall Street CEOs whose actions helped bring the world economy to the brink of collapse two years ago. I left the luncheon with a much more nuanced view of the man.

Prince raised some interesting questions that I -- and I suspect many -- would have a hard time answering, making me concerned about how much we've really learned.

Prince was criticized by author Michael Lewis and others for his quote, "When the music is playing, you have to get up and dance and we're still dancing." That was his explanation, in early 2007, for why Citigroup was so heavily invested in the subprime mortgage space.

It would be easy to write off Prince as a buffoon; someone in over his head. He was a lawyer, after all. He should have know better. People who make big mistakes in business are either idiots (like Prince), unethical (like Skilling or Kozlowski), or evil (like Madoff). We write them off, and move on.

So the obvious question for Chuck Prince is, what the hell happened to almost kill what was once thought of as the world's leading bank?

According to Prince, they held $40 billion in super-senior tranches on housing assets. Alan Greenspan had referred to these assets as "as safe as U.S. Treasuries." Overnight, they went from AAA to junk, according to the ratings agencies. At first, Prince (and his CFO Gary Crittenden) thought it was a $200 million problem. Then, it became an $8 billion problem, then an $11 billion problem, and later back to an $8 billion problem. By the time it was settled, however, Prince was long gone.

It's clear that Prince seethes at the ratings agencies' role. Since his world changed overnight -- with AAA assets becoming junk -- Prince obviously believes he deserves some understanding. At one point in the luncheon, he said:

"I guess what you should take from my story is, don't trust conventional wisdom. Even if theFederal Reserve chairman says some asset is rock solid, don't take his word for it. I guess in 2006, I could have gone down to our trading desk at the tip of Manhattan and told the traders, 'You know guys, I just don't think Greenspan or anyone else knows what they're talking about in reference to these super-senior tranches. I know we're at the top of the pyramid to always get the cash flow from these products, but I just think the world is going to change. Sell them all.' They would have looked at me like I'd lost my mind. They would have wondered, what does this lawyer think he's talking about?"

........

[This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.]

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Weill, Citigroup's Fall Intertwined

By Eric Jackson

01/06/10 - 06:01 AM EST

Stock quotes in this article: C , BAC

Sandy Weill, former chairman and CEO of Citigroup(C Quote), is disappointed.

Weill, who was the architect of the financial supermarket concept, the builder of the global bank on which the sun never set, and the main proponent of repealing the Glass-Steagall Act which allowed banks which were too big to fail, went public this past weekend with his beefs on how he's been portrayed for contributing to Citi's failure. His arguments are long on sour grapes and short on details.

In his interview over the weekend with the New York Times, Weill pointed out that Chuck Prince (his successor) and John Reed (his co-CEO following Citi's merger with Travelers) were more to blame for the bank's problems than him. Weill also blamed a lack of management quality, for which he agrees he's partly to blame, for Citi's undoing.

Weill used the interview as a vehicle to try and rehabilitate his image. His main points are that (1) Citi will always be his baby and he's taken the bank's fall from grace very hard; (2) he was an important person in shaping Citi but he's only one person and he left the top job in 2003 and the chairman's role in 2006 before problems emerged; (3) he's been a major benefactor in his post-Citi years; (4) despite accusations that he drove Jamie Dimon away from the bank in 1999, he wasn't ready to retire and Dimon only would stay if he got the CEO job; and (5) Weill has tried to help Citi since trouble broke out but has been rebuffed by the board.

[This post is an excerpt of the full article, which available on TheStreet.com by clicking here.]

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Where Citi Went Wrong

By Eric Jackson

TheStreet.com

01/15/09 - 12:26 PM EST

C , WFC (Cramer's Pick) , GS , JPM , MS , NFP

Citigroup (C Quote - Cramer on C - Stock Picks) is a mess.

From the moment Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks) snatched Wachovia from under Citi CEO Vikram Pandit bank in October, Citi has stumbled.

Its stock price since then has plummeted from the low $20s to the mid-$3s today, as the market fears its decision to sell its Smith Barney business to Morgan Stanley (MS Quote - Cramer on MS - Stock Picks) will fail to quench its need for capital in the coming months.

So what caused this massive implosion? A lot of Citi watchers have assigned blame for the large drop in the bank's market cap, from $300 billion to $30 billion.

Pandit has been widely characterized as a weak and indecisive CEO in the press. The New York Times blamed Bob Rubin and risk management headed by Tom Maheras -- both are now gone. In a recent interview, large Citi shareholder Prince Alwaleed bin Talal pointed the finger at former CEO Chuck Prince. A few (including John Reed, the man who merged Citi with Travelers in 1998) have also pinned Citi's shortcomings on the "financial supermarket" model masterminded by Sandy Weill. (On Tuesday, Pandit announced Citi would dismantle that supermarket model, returning to its old Citicorp roots.)

It turns out that Citi's biggest mistake leading to its downfall did occur in 1998, but it wasn't the April super-merger of Citicorp and Travelers -- it was the November ousting of Jamie Dimon by then-Chair and CEO Sandy Weill over a disagreement with Weill's daughter.

Had Dimon stayed on, he -- not Chuck Prince -- would have succeeded Weill and Citi would have avoided many of its missteps. Instead, Dimon moved to Chicago to head up Bank One, later triumphantly returning to New York when Bank One merged with JPMorgan Chase (JPM Quote - Cramer on JPM - Stock Picks). Dimon, who could now stare at his former employer down Park Avenue, now serves as CEO and chaiman of JPMorgan.

Wall Street has watched the spread in performance of the two banks ever since. JPMorgan's stock is down 30% since the merger with Bank One on Jan. 15, 2004, while Citi's stock is down 92%.

The reasons for corporate blow-ups are never simple; it's usually true that every employee is replaceable. However, Citi has never been the same company since Dimon was pushed out.

Even a decade ago, most knowledgeable observers knew Dimon was going to be a special CEO one day. Sallie Krawcheck (who was a Citi analyst at the time) said back then: "Investors are asking two questions: What should I do with my Citigroup shares and where is Jamie going next so that I can buy the stock?''

Dimon had been a longtime protégé of Sandy Weill's. After graduating from Harvard Business School in 1982, Dimon turned down a job offer from Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) to go and work for Weill, whom he knew through his father. Over the next 15 years, the two built an empire: Commerical Credit, Primerica, Travelers and Citi.

But in late 1998, after announcing the biggest merger ever, Weill and Dimon sparred over Weill's daughter, Jessica Bibliowicz. Dimon refused to give Bibliowicz the job of chief asset manager of Travelers, as Weill demanded. What's more, Dimon also wouldn't agree to promote Weill's son, Marc, to head up Salomon's bond group. Weill demanded that Dimon resign.

Jessica went on to run National Financial Partners (NFP Quote - Cramer on NFP - Stock Picks), a $100 million financial advisor that has seen its stock swoon by 93% in the past year as Barron's has written negatively about its future prospects. Having left Citi in 2000, Marc now heads a small money management firm in Greenwich, Conn., called City Light Capital.

All the World's a Stage

The Shakespearean similarities between what happened with Weill and Dimon are uncanny. Jaime Dimon was the Earl of Kent challenging King Lear and Weill sided with blood over an adopted son.

Weill now has had to watch the dismantling of everything he spent his career building. The Wall Street Journal quoted two friends who know Weill as characterizing his mood ranging from anger to despondence since hearing that Citi's "financial super-market" model was being disassembled.

Vikram Pandit was a poor choice as CEO in December 2007, as he's waited much too long to change Citi's status quo until forced by the government, but it's likely that neither John Thain, Ken Lewis nor Sandy Weill circa 1995 could have done much better given the circumstances the bank was facing prior to Pandit's hiring.

It's not 20-20 hindsight to say that Citi's greatest mistake was letting Dimon walk out the door. Many knew this at the time; when he said goodbye on the Salomon Smith Barney trading floor, 1,000 traders gave him a standing ovation.

One bad move does not usually cost a career or a company. Life has a way of giving us lots of "do-overs" to course-correct our mistakes. However, there are decisions that stick with us for the rest of our lives and we always look back on and regret. Weill's hubris in pushing Dimon out will always be looked back on as the beginning of the end of Citigroup.

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