Since Sandy Weill got on CNBC’s Squawk Box last week and basically turned his back on his career’s crowning achievement — the creation of a massive supermarket bank —Wall Street has been scrambling for reasons why.
After reading the FT editor Gary Silverman’s explanation, we think we’ve got a much better idea. Silverman writes about an interview he did with Weill 10 years ago, when he was just a reporter at the FT.
At the time Weill told him that “weird” things were beginning to happen in Citigroup’s stores. It turned out that buying cabbages and carrots at the same place was not the same as buying auto-insurance and a home equity loans at the same place.
“…what Citigroup discovered was that its borrowers – many of them people with tarnished credit histories – were unusually bad drivers. Citigroup was selling them auto insurance just in time for them to crash their cars and cost Mr Weill and his shareholders lots of money.
“The people who decided to buy auto or homeowner (insurance) through us turned out to be more risky than average,” Mr Weill said in an FT interview at the time. “It just didn’t play well together.”
And Weill is playing rapt attention to the game, Silverman says. He obsessively watches Citigroup’s stock price, and even at home his Bloomberg terminal was on “…no matter what was going on, his eyes would invariably turn back to the screen to check out his stock price. For him, that number was Raquel Welch in a fur bikini. I don’t think he ever got tired of looking.”
So bottom line: As long as investors believed that the supermarket model was working, it seemed OK. But now that Citigroup is worth half as much as retail giant Well Fargo, it definitely doesn’t.
Makes sense, right?