Sandy Weill's solo act is back. After 15 months in a sometimes strained power-sharing duo with fellow Chief Executive John Reed, Weill has the CEO job to himself after Reed said Monday he'll retire from Citigroup (C) in April.
And although Weill's new billing is daunting -- chief executive of the world's largest and most powerful financial-services firm -- many observers are glad that the bank now has one boss, and that it's Weill, not Reed.
"Sandy's won again," says Tom Brown, a manager at
Second Curve Capital
, a bank-stock investment management firm that has no position in Citigroup shares. "And anytime Sandy wins, it's good for shareholders."
Weill, in a carefully worded statement released Monday, says Citi aims to find a successor for him within two years, but stops short of saying when that successor will actually take over. "Like any strong leader, Sandy Weill recognizes the disadvantage of
anointing a successor early on and becoming a lame duck," says Second Curve's Brown.
Robert Rubin, the former Treasury secretary appointed co-chairman in October, again stressed Monday that he isn't interested in the CEO post.
Citi's stock rose on the news, adding 1 9/16, or 3.3%, to 49 9/16. Other bank stocks, hit hard in recent months, rose as well, as illustrated by the
KBW Bank Index's
Citi's board, populated with strong-minded executives like
CEO Michael Armstrong, had been urging Weill and Reed to sort out the power-sharing and succession issues since the middle of last year. And the two did make a move toward doing that in July last year when, according to a memo leaked to
The Wall Street Journal
, they agreed that Weill would be in overall command of Citi's business lines, while Reed would have charge of technological innovations and legal issues.
Reed said that he and Weill discussed the leadership question four to five weeks ago, and the board approved Reed's retirement plans Sunday.
On a conference call Monday, Reed stated that Citi was moving beyond the first stage of integration after the 1998 merger between
and moving into "a phase where the company would benefit from unified management." Rubin, also on the call, put it more clearly: "The time has come to have a single CEO."
Credit Suisse First Boston's
bank analyst Mike Mayo, a Citi skeptic, cautiously welcomed the news: "We think it's good to have more clear-cut management." (Mayo rates Citi a sell, and his firm has done no underwriting for Citigroup.)
So why are observers so blase about Reed's departure? After all, during his 35-year career he has been built up into something of a legend in the nation's banking industry. It can't be that he's getting past his prime: He's 61, while Weill turns 67 next month.
But Reed's achievements may have been overstated. Although he was instrumental in rebuilding Citicorp in the '90s, he also was partly responsible for the bank's near collapse at the start of that decade. In addition, the business areas that Reed was most closely associated with -- consumer banking and technological innovations -- are not highly rated by some observers. (
recently looked at
weaknesses in Citi's consumer banking areas.)
Says Second Curve's Brown: "The biggest disappointments of the '90s was Citicorp forfeiting its leadership in consumer banking." Brown says that Citicorp has slipped behind in its credit card business and that recent good results in its retail banking network have come mainly from cost-cutting, which generates only one-time gains. Consumer businesses at Citi accounted for 43% of core income in 1999.
Though he's often described as a visionary because of his ambitious plans to apply technology to banking, Reed's record on this front has been spotty. He was behind the costly acquisition of failed quotes system
, and Brown wonders whether e-Citi, Citigroup's current tech effort, will have its funding cut back now that Reed, its main backer, is going. e-Citi showed combined losses of $531 million in 1999 and 1998. "The question now is what's going to happen to
e-Citi chief Ed Horowitz," Brown adds. Horowitz wasn't made available for comment.
Holding the Red Umbrella
Now that the co-CEO arrangement is gone at the very top, some wonder whether it now will be eradicated in the next rank down, with Weill making sure that ex-Travelers people gain the advantage. CSFB's Mayo points out that the global corporate and investment bank, responsible for 51% of Citi's core income in 1999, still has one ex-Travelers co-head, Michael Carpenter, and one ex-Citicorp honcho, Victor Menezes. On the call, however, Weill said he "doesn't see any need to change that" arrangement. Neither Carpenter nor Menezes were available for comment.
Naturally, because Weill has delicately broached the subject of his own departure, the game of identifying possible successors soon will start in earnest. Weill has had a history of promoting from within, but none of the possible candidates seem as strong as Jamie Dimon, the young former head of the global corporate bank, once did. In a surprise move, Dimon, Weill's most trusted lieutenant, was asked to leave Citi in November 1998.
A senior exec like Bob Lipp, the head of the consumer business, normally would be in the running, but Mayo points out Lipp's over 60, and adds: "The place is not full of Young Turks."
That's why some people think that Weill may have to go outside for a successor. "They'll have to look externally as well as internally," says Scott Birnbaum, a vice president at
Mercer Management Consulting
, a consulting firm that has done work for Citigroup. While he thinks both Carpenter and Menezes could be runners, he also names
President Kenneth Chenault as a well-qualified candidate because he's one of the few executives with experience in running a large global financial enterprise. An Amex spokeswoman declined to comment.
Birnbaum adds that Citi's next leader also could be recruited from within the next institution it may decide to acquire.
Birnbaum also suggests that
would make a good successor to Weill. Relax, Citi shareholders. A spokesman for the president says he'll be "devoting a considerable amount of time to his library."