Why Citigroup Never Mattered

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Citigroup's world headquarters in New York City

Sandy Weill created Citigroup (C) because he wanted to run the world's largest financial services company. He had lost this opportunity earlier in his career, but he did find a way eventually to get what he wanted.

On April 7, 1998, Citi was created from the merger of banking operation Citicorp and insurance operator Travelers. Citi has laid off tens of thousands of people over the past year, but it is still tremendously large, the way its founder hoped it would be, with more than 300,000 employees. (See pictures of the global financial crisis.)

Citigroup was never a real company, from the day it was formed until today. With four huge business units and dozens of operations in scores of countries, the notion that a consumer-credit-card operation under a common roof with a corporate-lending business should be helpful to either business was ridiculous.

Citigroup has begun to take itself apart. Its Smith Barney brokerage operation is being merged with a similar business at Morgan Stanley (MS). It is not clear how that is good for Citi, but its executives probably are taking as much care thinking through tearing down the company as they did building it up.

Weill's dream, pared down, will have more "focus." According to the Wall Street Journal, "The company plans to focus on wholesale banking for large corporate clients and retail banking for customers in selected markets around the world."

Selling off the assets that Citi does not want may be tricky, especially in a market where credit is so tight that even attractive businesses can't be sold.

Citi was supposed to be a company where it mattered that a wealthy private client in the U.S. was doing business with the same Citi that was trading euro futures in Dubai. This would not have worked even in a world where every manager could see the breadth of the entire company and executives were never territorial. And Citi did not have either of those advantages.

In 2000, Citi's stock traded for about $60 a share. It will never get back there again. Trading at $6 now, it may never get back to $10. Much of that drop is due to the market, furious at bad investment decisions that caused huge losses, which has diminished the value of bank stocks by over 80%.

Would being smaller and more focused have helped Citi over the past two years, or in the period just before that when it was piling up investments in mortgage-backed securities and LBO debt? Since all of its peers, even the smaller banks, did the same thing, probably not.

But, it still never worked that GE was doing business with the same Citigroup that the man on the street was. All the money and imagination to put that company together were wasted.

Douglas A. McIntyre

Read TIME's Justin Fox on Citigroup.

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