09:47 27Feb2007 WSJ(2/27) Breakingviews: A Surgeon Joins Citigroup
WSJ(2/27) Breakingviews: A Surgeon Joins Citigroup
(From THE WALL STREET JOURNAL)
Not so long ago, American Express led the trend toward the formation of the financial conglomerate. Through a series of acquisitions in the 1980s, the credit-card giant tacked on an investment bank, a brokerage, a securities processor and a fund manager. When all of these bits and pieces failed to deliver adequate returns for investors, AmEx led a different vanguard: the breakup of the financial conglomerate. That ultimately proved a far better strategy for its shareholders.
Now, one of the architects of the dismemberment of the former AmEx empire, Gary Crittenden, is taking the chief financial officer's job at Citigroup. His experience may be good news for Citi's long-suffering shareholders. The $259 billion behemoth that Sandy Weill built up through acquisitions has yet to prove it can grow internally or that its parts are worth more together than if separated.
Citigroup Chief Executive Charles Prince maintains that there is value in keeping the big bank's myriad operations under one roof. But lackluster performance has made shareholders restless. It's tough to see how the board could countenance another year of underperformance without making major changes in management and business structure. As a result, 2007 is widely seen as Mr. Prince's make-or-break year.
So Mr. Crittenden's arrival is fortuitous. He can play a role not just as an operator -- but as the potential internal successor to Mr. Prince with the most experience at winnowing down an unwieldy conglomerate. At AmEx, he oversaw the split of the credit-card operations from its broker and fund-management arm, Ameriprise.
Since that late 2005 divorce, Ameriprise shares have gained 66%. The card business also has appreciated by some 15%. Lehman Brothers stock has risen 20-fold since AmEx set the firm free in 1994, while another spinoff, First Data, has risen ninefold. Citi might not be recruiting Mr. Crittenden for the AmEx manual in dismantling a conglomerate. But investors may yet find this his greatest asset.
Saving Chrysler
Will private equity save Chrysler? It's not impossible. But it's unlikely to appeal as the ideal option for DaimlerChrysler, the struggling car company's parent. As it stands, not only would a leveraged-buyout firm balk at paying at all for for Motor City's number three -- it would probably insist on being paid.
Here is why. Chrysler should be worth about $10 billion if its 2009 pretax return on sales hits its 2.5% target. Trouble is, that's more than wiped out by the $13 billion of unfunded healthcare and pension liabilities it's carrying. On top of that, turning the company around even to this lowly point requires spending almost $5 billion on investments, layoffs and plant closures, according to Daimler.
The Stuttgart-based manufacturer might still choose this option, but it would
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