Counterparties: The clarifying effects of CEO retirement
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It was a comment that launched aÂ thousand strained attempts to capture its essential absurdity. Sandy Weill, the man who broke the wall between commercial and investment banking, the architect and former chief executive of Citigroup, has decided the whole thing is now aÂ bad idea:
What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something thatâs not going to risk the taxpayer dollars, thatâs not too big to fail.
That’s a massive reversal for a man whoÂ two years ago hungÂ a “hunk of wood âÂ at least 4 feet wide â etched with his portrait and the words ‘The Shatterer of Glass-Steagall’” in his office. Even then things had changed: Citi was in a shambles, and Weill had gone from the pioneer of an economic boom to an early harbinger of the dangerous financialization of the American economy.
Weill, it turns out, is not the only now-retired finance chief to have second thoughts.Â The American Banker has a list of otherÂ prominent proponents of breaking up the big banks. Phil Purcell, former CEO of Morgan Stanley; John Reed, former chairman of Citi; David Komansky, former CEO of Merrill Lynch — each one is on the list. Dick Parsons, another former Citi chairman, isn’t on American Banker’s list, but he shouldÂ be.
The public mood toward finance has shifted dramatically, but so has the employment status of each of these men. Parsons’s post-retirement alacrity was particularly bold: It took him just three days away from Citi’s board to have second thoughts. It seems that once you receive the banking chieftain’s version of an AARP card, repressed doubts about the value of your life’s work emerge. Or perhaps your incentives (and ego inflation) now come from public plaudits and not compensation.
Lining up against Weill et al to defend big banks is former senatorÂ Phil Gramm, the co-author of the bill that retroactively legalized the merger that created Citigroup. He’s joined byÂ Rodge Cohen, the Sullivan & Cromwell rainmaker famous for advising numerous bank CEOs through the financial crisis. Wells Fargo Chairman and CEO Richard KovacevichÂ disagrees based on Rumsfeldian existentialism: “Investment bankers are risky, not investment banking”. Other big-bank CEOs have been silent, but they might say they’ve already addressed the matter âÂ they’re not too big to fail, because they have filed a piece of paper with the Fed saying they can fail.
It will take more than armchair advice from former titans, it seems, to persuade current big-bank executives that Weill is on to something. It will take demonstration of real economic gain: Even if Jamie Dimon “canât imagine” that any unit of JPMorgan would be more profitable alone, the idea of more thanÂ doubling shareholder value could, one suspects, catch James Gorman’s eye. âÂ Ben Walsh
On to today’s links:
Germany’s finance minister declares that markets are wrong, then goes on vacation âÂ Bloomberg
Draghi’s bazooka: The ECB will “do whatever it takes to preserve the euro … believe me, it will be enough” âÂ Bloomberg