Pardon me for committing the cardinal sin of watching CNBC as I downed my Cheerios this morning, but I nearly spat up a few bits of the circular cereal at the boob tube in disbelief when I heard former Citigroup CEO Sandy Weill call for breaking up the nation's biggest banks and essentially reinstating Glass-Steagall and going far beyond Dodd-Frank.
I'm not saying he is wrong. We may well have taken banks that are too big to fail and created even larger ones that are too big to save. Others like Richard Fisher, president of the Dallas Fed, former FDIC chair Sheila Bair and former Morgan Stanley CEO Philip Purcell have argued some of our gargantuan banks pose a serious danger to our economy. None of these folks could be called a radical zealot like Massachusetts senatorial candidate Elizabeth Warren, who for a fleeting moment saw the financial crisis as an opportunity to nationalize the big banks.
But Weill was the individual who almost singlehandedly created the financial supermarket and dismantled Glass-Steagall before the clods in Congress, with the approval of Alan Greenspan and Bill Clinton, got around to enacting actual repeal. Weill first tried to create a financial supermarket when he merged Shearson Loeb Rhoades with American Express in 1981.
After being ousted in a power struggle with American Express CEO James D. Robinson III in 1985, Weill set out to teach Robinson and the rest of Wall Street who was the real king of the hill. Eyebrows levitated when he bought obscure Commercial Credit Corp., a consumer finance concern.
From there he was off to the races, buying Primerica, parent of Smith Barney and A.L. Williams, in 1988 after the 1987 stock market crash. In 1993, he repurchased Shearson from his old firm, American Express, which then was operating under new management after his old colleague Robinson and former lieutenant Peter Cohen were ousted in the wake of the 1990-91 recession.
By late 1993, it was time for big game and he bought Travelers Corp. for $4 billion. Then in a two-step process, he bought Salomon Inc. in September 1997 for $9 billion and followed it up by merging his umbrella holding company, Travelers, with Citicorp.
To ensure Glass-Steagall's repeal, Weill recruited a bipartisan team of heavyweights to his board, former president Gerald Ford and former Treasury secretary Robert Rubin. During his tenure as CEO at Citi, Weill managed to oust the two most capable potential successors, former Citicorp CEO John Reed and current JP Morgan CEO Jamie Dimon. In a magazine interview shortly thereafter, he spoke of "discovering your inner shark."
Though Citigroup stock performed well during his tenure, Weill never managed to integrate these myriad businesses and capitalize on all the so-called synergies that Wall Street analysts falsely touted. Whether a highly skilled executive like Weill, Reed or Dimon could have managed a far-flung institution as large as Citicorp through the financial crisis is a question that will never be answered.
What's clear is that Weill's handpicked successor, attorney Chuck Prince, who was annointed CEO for dealing with Citigroup's numerous legal and regulatory woes, could not get his arms around the octopus. Citi's current CEO, Vickram Pandit, is pleasant and brainy but had less experience in commercial and consumer lending than Weill, who had scant familiarity with those businesses when he became co-CEO in 1998. For all his talents, Weill's succession plan was reminiscent of one that might be implemented by a bodega owner or a nine-person RIA firm.
Until today, Weill had never publicly contended that repeal of Glass-Steagall played a role in the financial crisis.
Asked by CNBC what kind of regulations would work for banks, he cited 12- or 15-to-one leverage with no off-balance sheet liabilities (the latter was an area that Citi pioneered). Amazingly, he claimed breaking up the banks would make them more profitable. Weren't all those mergers supposed to slash overhead and create scale that would redound to shareholders' benefit? Given the price/earnings multiples of megabanks' shares these days, size doesn't seem to be enhancing value. If their shares continue to flounder, disgruntled shareholders could ultimately be the trigger that sparks a breakup of these mammoth institutions.
When questioned whether he was repudiating a record that earned him a wood etching entitled "the Shatterer of Glass-Steagall," Weill said no, it was the right strategy for the time. But that was then and this is now. Hmm.
The wake caused by the financial crisis and real estate depression demands a new regulatory structure in his view, one simpler and more far-reaching than outlined in Dodd-Frank. But a regulatory scheme that shifts with different economic cycles is impractical and isn't built to last. Moreover, it simply fails to add up.
As someone who devoted most of his life to building a major part of the U.S. financial system, Weill clearly possesses unique insights into how it works. Whether you agree or disagree with him, his opinion counts and it's clear he believes that our institutions have morphed into quasi-zombies that don't serve the national purpose the way they should.