How Prince lost the plot — and why the next episode may be Sachs and the Citi

I hazarded here in February that it would probably be a good idea if the world’s largest bank were to be run, every now and again, by a banker. At last the board of Citigroup has come round to my point of view, though it might have saved shareholders a few billion dollars by doing so sooner. Charles Prince has gone as chairman and chief executive after announcing a loss of perhaps $11 billion on mortgage-backed securities that turned out to be neither backed nor secure. Robert Rubin has been left holding the fort as chairman and Sir Win Bischoff as chief executive, pending the arrival of somebody new with a head for figures. The early gossip was that this would be John Thain, a former Goldman Sachs executive with a safe pair of hands, who went to run the New York Stock Exchange in 2004. But Thain has decided to take another big job on offer, running Merrill Lynch. There he replaces Stan O’Neal, a Wall Street bruiser ousted a few days before Prince for dropping $7.9 billion in much the same way that Citi did. Thain explains his choice by saying Merrill is a good business that took a wrong turn, and he’s sure it can be fixed. What that implies about Citigroup is anybody’s guess.

My own guess goes something like this. Citi is a grab-bag of good but disparate businesses thrown together in pursuit of a grand global strategy that turned out to be — literally — unmanageable. If you’re going to run a bank on the basis that a position here hedges a position there, then you need somebody in the middle who knows what all the positions are. In a conglomerate the size of Citi, the centre loses the plot. Whoever comes next at Citi is going to be a seller of businesses, not a buyer of them.