Was Citigroup getting too big?
TEXT OF INTERVIEW
Scott Jagow: Today, Citigroup denied reports that it wants to sell its Japanese brokerage and investment firms. But selling them certainly wouldn’t be out of line with what Citi needs to do: get smaller, raise money, sell off assets. In fact last week, Citi said it was selling a stake in Smith Barney. Citi’s losses are huge, and many people think the problem is that Citi just got too big. It tried to become a one-stop bank where you could open a checking account and buy stocks and get insurance.
Our friend Allan Sloan from Fortune Magazine is here. Allan, is this just a case of Citi buying too many businesses, too many different kinds of companies?
Allan Sloan: It’s even worse than you say, Scott. You’re right about it being very complicated to manage because there’s so much of it. But also the thing is so big that as we now see, the government doesn’t dare to let it fail, and we have now far more companies than we used to have that are too big to fail because the restraints on what companies could do have been lifted, and now we’re all gonna pay for it.
Jagow: Yeah, I’ve heard these behemoths referred to as “financial supermarkets,” where you can get just about anything you want. Is that era over now?
Sloan: Boy, I sure hope so, because this is at least now the second time I’ve seen this era. In the late 70’s and early 80’s, we had a batch of these things. And what happens is the produce on the aisles of the financial supermarket rots, and after having assembled — there’s company called Sears you may have heard of, a company called American Express — they decided they were going to go into the financial supermarket business and build up these things and then broke them up. And now Citi has done the same thing, but on a much, much bigger scale. And the line of course is you walk into one of these branches of one of these gigundo places and they want to feed you off the prefix menu, they want you to take all of their stuff. I’d rather go a la carte.
Jagow: So might we be headed now into an era of specialization in the financial industry?
Sloan: I’m not sure, but the idea of combining ever single financial thing in one company generally doesn’t work, and then the companies get so big that you and I have to bail them out if they get into any trouble — and meanwhile, the people who put the supermarket together and got all the fees of putting it together get more fees for taking it apart. But the idea that you bought everything from the same place — you buy insurance, and you buy a second mortgage, and you buy a first mortgage, and you buy this and that and all of your financial needs would be met by one company — that’s over, and it’s — I’m very happy that it is.
Jagow: All right, Allan Sloan from Fortune Magazine. Thank you.
Sloan: You’re welcome, Scott.
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