Sandy Weill said what?

from Peter Radford

I must be getting old. Too old to understand English anymore. Sandy Weill, architect of Citibank’s ill advised growth, and long time advocate of the form of universal banking that brought about the crash, has just pronounced on the state of banking.

And called for the break up of the big banks.

Pinch me please.

Or at least roll the drums.

This is an astonishing volte face for someone who championed the elimination of Glass Steagall. More than that. He engineered a merger between Citi and an investment bank that was illegal at the time, so he had to get the law changed in order to complete the deal. He was that involved in shaping the modern banking scene. He was one of the fiercest opponents of regulation. He was outspoken, hard charging, and the very essence of the kind of banker who now dominates the industry. The mega banks were, in large part, his creation. 

Now he wants them broken up.

There are two ways of looking at this.

One is that he sees the error of his ways and now wants, for all the right social reasons, the banks to be cut down in size and scope.

Or.

Maybe. Just maybe the reason he is willing to undo his life’s work is that his shares in Citi suck. A quick analysis tells me that Citi is worth more to its shareholders broken up. The parts are definitely worth more than the whole. So Our reformed Mr Weill is simply being a smart investment banker. He stands to gain a lot. A whole lot. So of course he wants them broken up. It’s all about the financial engineering.

Do I care?

Not really.

If Weill and his ilk make a bundle when we break up the mega banks, so be it. The social goal is to get rid of them. The taxpayers will win as well. The only people to lose will be the current executive teams of the banks who are the only reason those banks exist in their current form. No one else benefits. Indeed, as Weill is letting us know, everyone else, even the shareholders, suffer. And that’s saying something.

Not only are the mega banks too big to fail, too big to manage, too big to regulate, too big to analyze, and too big to understand, but they are too big to own. They have outgrown any useful purpose.

Break up the banks! Even Sandy Weill agrees