The Many Questions Behind Citigroup and Robert Rubin

So much for the financial supermarket concept. So much for money superstar Robert Rubin.
Beleagured Citigroup, a major federal bailout recepient, is undergoing quite a bit of angst as it tries to figure out its next metamorphosis. It is apparently tossing out its retail investment arm, Smith Barney, to Morgan Stanley and its profitable Grupo Financiero Banamex operation in Mexico, most likely to JP Morgan.
As part of the deal, financial maven Robert Rubin, who had been an uber-adviser and director at Citi, announced he was vamoose this April, essentially jumping ship.

While many believe the breakup of giant Citi is at hand, it is highly uncertain what will happen and if there is a game plan. When Citi badly needed emergency bailout money last fall, CEO Vikram Pandit had been reluctant to unload Smith Barney. But now, it's on the table as is the entire supermarket concept that Citi had been building up to for years.

Both Rubin and another superstar, Sandy Weill, had played big roles in the financial Wal-Mart idea with Weill buying up dozens of firms, culminating with the 1998 merger of Citi with Travelers Group. Rubin, who made his name at Goldman Sachs, was Treasury Secretary under Bill Clinton at the time and later assumed a role as super-adviser to the supermarket. He has ended up $115 million the better for it.

For much of this decade, Citi did remarkably well, despite lots of problems with execution.

It all peaked around the summer of 2007 and has been downhill since, with Pandit stuck with the declining mess. Add to the mix, questionable Citi deals with Enron, WorldCom and Parmalat, big woes in Japan, $45 billion in toxic loan write-downs, and being banned from making acquisitons for a couple of years by the Fed due to bad risk management.
The big question is what will be sold next and when? Some believe that it might as well get rid of its retail-banking operation and some however regroup in a more manageable size later. There have been big questions about management and customer satisfaction, which is why some observers say that Citi was so interested in snaring better-run Wachovia (and is still pursuing its pointless, pouty-mouthed lawsuits against Wells Fargo which ended up with Wachovia).

It's all too bad because Citi did have its moments. Personal note: back in the mid 1980s, I was preparing to go overseas on a lengthy news assignment to the Soviet Union where communucations were very primitive. Citi was about the only big bank that could help ex-pats like me keep their credit card payments current. It also was a big leader in ATM technology. Later I noted a decline in service.

Another issue is how the Citi mess hurts Rubin's role as an economic adviser to the incoming Barack Obama Administration. His star power and mantra of balanced budgets and free trade has attracted a number of other economic experts, such as Larry Summers, who are going to Washington with Obama.

Right now, there seems to be no plan at Citi, which is tragic. It shows again how its easy to pull off Weill-Rubin-style expansions that used to get all the fawning business magazine cover headlines. And it shows how tough it is to play defense well.