January 14, 2009
Citigroup and GE Need to Bust-up
Citigroup and GE and old fashioned conglomerates that grew too broadly, too fast and need to be busted-up, focusing on a core business and selling or spinning off all others. Too bad hostile takeovers are dead; a bust-up buyout would be appropriate for both companies.
January 14, 2009 | Permalink
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Citi received $45 billion from the government (I mean taxpayers) in bailout funds, yet it's not enough. Now, they are forced to spinoff parts of their business just to survive. Worth mentioning is that they are forced to sell off the best and most successful parts of their business first (see 51% of Smith Barney to Morgan Stanley for $2.7 billion in cash). Banks are already going back to the government for access to the remaining bailout funds (see BOA today), and there's really not blip of confidence that this $700B fund is going to save the banks in the end. Even if they are saved, how strong of a business will many of them have left after this dismantling process? The outcome of this financial crisis will be 2 or 3 mega banks, combining both investment bank services and commercial services which have in the past traditionally been kept seperate. Ironically, this is the very situation (financial supermarket model) which has purported to cause Citi's current problems. Down the road, the mega banks could potentially be challanged by antitrust violations, but such concerns are on the back burner during the fight to survive.
The big question is becoming when will we draw the line with how much money America is willing to throw at this problem? Futures indicators are showing a housing bottom will not occur until 2010, and most believe that the economy, and in particular the financial sector, will not be able to recover until the housing market recovers. This recent run up of the DOW to 9,000 was built on nothing but false hopes and unwarranted optimism. The DOW has been down 6 consecutive days in preparation for a absolutly dismal earnings season starting later this week. It will be interesting to see if the market has already priced in the bad news, or if the horrid results will still bring a shock and further losses. The 8000 mark always seems to be met with resistance (perhaps because it triggers automatic buy orders), but it's becoming very likely we breach it yet again.
Posted by: Mike Rosemeyer | Jan 14, 2009 5:18:11 PM
I can agree with you about Citibank, but how can you say GE is a conglomerate that grew "too broad, too fast"? GE may be too broad (a matter of opinion) but it has been an industrial and financial conglomerate for decades. True, it has added and shed businesses during that time, reshaping itself, but that is what any business should be doing.
Can you elaborate?
Posted by: David | Jan 21, 2009 9:18:18 PM