Rubin Deserts a Sinking Citi

Robert Rubin built the basis of his reputation, and his fortune, at Goldman Sachs. He then went to work on the two in sequence: the former at Treasury, and the latter at Citigroup. It all worked out quite well for him, except for the way in which the $115 million (plus now-worthless options) he made at Citi managed to substantially detract from the reputation he so carefully built up in Washington.

Now, he's leaving Citi as the bank ponders selling off two of its crown jewels -- the bread-and-butter predictable income stream from the Smith Barney brokerage operation, and the hugely profitable and successful Banamex, which has a presence in Mexico which borders on the monopolistic.

Neither of the mooted buyers makes much sense to me. Smith Barney to Morgan Stanley? Didn't Stanley learn its lesson with the Dean Witter acquisition? And Banamex to JP Morgan? I know there's an unspoken rule in financial journalism that JP Morgan always has to be top of any list of potential acquirers, but never, to my knowledge, has Jamie Dimon expressed the tiniest bit of interest in taking his Chase retail brand abroad.

Indeed, there's no obvious buyer for Banamex at all. Santander already owns one of Mexico's big three banks, so it can't buy another. HSBC might be interested, but in general most banks are highly capital constrained right now and don't have the money to buy Banamex. More likely, in my view, would be a spin-off, with Manuel Medina-Mora taking Banamex public in what would certainly be the biggest Latin American IPO of the year.

The idea of selling these assets does imply to me that Citi is facing up to reality: realizing that it can't save itself through acquisition, as it briefly attempted to do when Wachovia went belly-up, it's shrinking down to a more manageable size.

I wonder how much time has been spent pondering the really radical option: pulling a Bank of New York and selling off the retail-banking operation. Citibank in the US is a large but dreary bank which has never been run particularly well at the retail level -- that's one reason why Citi's executives wanted to hand responsibility for it to the Wachovia executives in Charlotte. Now that's an asset which you could really get a bidding war going for.