Why Citigroup Should Be Broken Up - Now

In sticking up for Citigroup's (C) corpulence earlier this week, Sandy Weill bragged to the New York Post that "being large and having a strong balance sheet enables a company to withstand the financial turmoil that happens every now and then in global markets." Is he kidding? Why Weill thinks that investors would take comfort in that statement, I can't begin to understand. For what he means is exactly what we've been saying here for months: Citi has gotten so big, and lumbering, and broadly diversified that it simply can't generate meaningful organic growth anymore. The law of large numbers won't allow it. Great, Sandy! If all I wanted from my investment was an instrument that would "withstand financial turmoil" I'd simply buy Treasury bills and be done with it. Presumably Citigroup's shareholders want something more than that.

More to the point, if Citi were broken up into, say, the four entities we've suggested, the resulting companies would still be so big--their average market cap would be over $50 billion--that they'd be likely be just as well-positioned as Big Citi is to withstand the kind of financial turmoil Weill has in mind. The main difference: the standalone companies would be more focused, easier to manage, and less bureaucratic. They'd have an easier time recruiting talent, as well. Which means they'd almost certainly grow faster on their own than they can grow as Citigroup subsidiaries. Oh, and from the get-go they'd likely be worth more separately than they are all wrapped together in one massive financial monolith.

Citi ought to be broken up--now. If this is the best defense of the corporate status quo at Citigroup that Weill can come up with, the case for a making the move is even more compelling than I thought.

C 1-yr chart

Tom Brown is head of BankStocks.com.