Citigroup Too Big To Fail, But Just The Right Size To Explode Into Little Bits

Citigroup – the obese, inefficient banking failure that has received over $45 billion in government money since September last year - is set to flog off a massive stake of its global empire in a move to de-merger what was formerly the world’s largest bank.

The WSJ reports that Smith Barney, the bank’s major brokerage unit, is to be part sold to Morgan Stanley at firesale prices. Revenue from Smith Barney represented about 16.3% of total earnings for the mega-bank in 2008 ($7.9 billion), yet Morgan Stanley will buy their 51% stake for $2.5 billion.

Felix Salmon even thinks Citigroup might try to take its Mexican super-bank Banamex public, in “what would certainly be the biggest Latin American IPO of the year”.

Speculation rippling through the internet seems to point to Fed bailout queen Elizabeth Warren forcing the sale/s, as the US government focuses on reviving specific sections of the banking system (which don’t include retail brokerages for middle class mum’s and dad’s looking to diversify their assets using the clumsy aspersions of screaming televangilist econo-goons).

While this is definitley not the time to be selling any banking assets, we applaud any move to break up Citigroup. Former CEO Sanford Weill’s vision of creating a leviathan bank replete with endless synergies was turned into a laughing stock and a circus under CEO Charles Prince, who showed that once a bank has reached certain proportions the traditional decision making processes of a company will likely break down (to be replaced by an egregious pyramid scheme aimed at making short term profits). Companies that are too big to fail are also likely to be too disorganised to succeed, and too divorced from normal moral hazards to give a crap about long term stability.

It’s not the best time to sell off assets, but to prevent tax payers from having to fork out billions more in the future, mega banks like this should be dismantled. With megalomaniacal banking CEOs ego/power at an all time low, now might be just the time to do it.

Posted by Jonty Rhodes in Hot Money | January 12, 2009 11:04AM |