Why Citi Needs Rubin

What is it with all these Citi memos which are coming out? There was the Asia reshuffle, the Markets reshuffle, the axing of the executive committee, and now the investment bank expenses memo. The weird thing is that all of them seem to make Citigroup more complicated and more bureaucratic: Markets, for instance, now comprises no fewer than ten different product groups -- up from three. And Markets, remember, is one of seven product groupings within the bank as a whole -- a number which is also up from three. And then there's a whole set of regional reporting lines layered on top.

It's almost enough to make one appreciate Bob Rubin.

While the substance of the memos is regrettable, their style is even worse: investment-banking head John Havens, for instance, today decided to refer to "the work around headcount" as a euphemism for layoffs. Everything is long on circumlocution and short on vision or simplicity.

Citi employees could be forgiven a few hollow laughs of late upon receiving yet another memo talking about how all these shake-ups are designed to tear down walls between fiefs and give the bank just one face as far as the client is concerned. It's the same story we've been hearing for a decade, and it has never seemed further away from fruition -- especially given that Vikram Pandit wants to sell off hundreds of billions of dollars' worth of "non-core assets" which presumably will have to be walled off quite assiduously before they're sold.

So I'm willing to come to the defense of Bob Rubin, and his continued presence at the bank. If there's one person capable of transcending fiefs and being the Face of Citi as far as the bank's most important clients are concerned, it's Rubin. And it might well be to Rubin's credit that so far the bank's troubles have been entirely internal: there's very little evidence that any large or important clients have deserted it. While Rubin was successfully schmoozing policymakers and industrialists, the professionals whose services he was selling were managing to screw everything up on their own. Should Rubin have been more focused on Citi than on its clients? Maybe, but don't tell that to Pandit, the "client-centricity"-obsessed CEO.

In any event, one of the biggest risks facing Citi right now is regulatory. The all-things-to-all-people model has been shown not to work, and there are very strong arguments for bringing back Glass-Steagal, or something like it, and paring America's banks back to a point at which their failure wouldn't cause an economic depression.

The biggest victim of such a regulatory crackdown would be Citigroup, whose only reason for existence is to somehow monetize its own enormity. It's not impossible: HSBC and Santander seem to be able to be profitable, international, and large. In theory, a strong investment bank like Citi's should be able to bolster such profits. And if that's ever going to happen, Citi's going to need Rubin in Washington, heading off any attempts at breaking up Citi.

Yes, a break-up might be for the best, both from a regulatory perspective and from the point of view of shareholders. But for the time being management is sticking to its "global universal bank" mantra, and so long as that mantra remains, Rubin will continue to be invaluable.