Weill, the
aggressive dealmaker who built Citigroup on the idea that in banking, bigger is
better, said Wednesday that he believes big banks should be broken up.
Speaking on
CNBC's "Squawk Box," the 79-year-old Weill appeared to shock the
show's anchors when he said that consumer banking units should be split from
riskier investment banking units.
That would
mean dismembering Citigroup as well as other big U.S. banks, like JPMorgan
Chase and Bank of America.
It's an idea
that's traditionally more in line with the banking industry's harshest critics,
not its founding fathers. It's an ironic twist coming from an empire-builder
who nursed Citigroup into a behemoth. And it's directly opposed to the stance
of the industry's current leaders, like JPMorgan CEO Jamie Dimon, who have been
trying to convince regulators and lawmakers of just the opposite, that big
banks do not need to be split up.
Weill said
the radical change is necessary if U.S. banks want to rebuild trust and remain
on top of the world's financial system. Weill also criticized banks for taking
on too much debt and not providing enough disclosure about what's on their
balance sheets.
"Our
world hates bankers," he said.
Big banks
have been vilainized in the financial crisis and its aftermath. Critics blame
them for risky trading that created a housing bubble and eventually led to
global economic upheaval. In some circles, there's still resentment that the
government used taxpayer money to give bailout loans to the biggest banks, including
Citigroup, because regulators believed that the financial system wouldn't be
able to handle their failure.
But
standalone investment banks, Weill said, wouldn't take deposits, so they
wouldn't be bailed out. Banks that have both investment banking and consumer
banking say it's necessary to keep them together because they balance each
other, ensuring stability no matter the economy.
Investment
banking, which offers services like trading stocks and packaging loans into
securities, can be spectacularly profitable in the good times and spectacularly
unprofitable in the bad. Consumer banking, the plain-vanilla business of making
loans and accepting deposits, generally offers a steadier, if slower, way to
make profits.
Until the
late '90s, the Glass-Steagall Act largely kept consumer banks and investment
banks separate. Glass-Steagall was created during the Great Depression. The
separation rules were repealed in 1999.
Weill's
professed conversion set off a flurry of reactions. The banking industry's
critics hailed it as proof that the biggest banks should be split.
"Sanford Weill is one of many banking industry experts who have observed
that too big to fail is often too big to manage," Sen. Sherrod Brown,
D-Ohio, said in a statement.
Others were
unimpressed.
Joshua
Brown, a New York investment adviser who writes the blog "The Reformed
Broker," called Weill "the original architect of Too Big To
Fail" banking and noted that Weill didn't apologize "for the
Citigroup he built or its imitators."
"Perhaps
this is about burnishing his legacy," Brown wrote.
Weill said
he hadn't talked to JPMorgan's Dimon or Vikram Pandit, Citigroup's current CEO,
about his new stance. Dimon was Weill's protege before getting ousted in a
power struggle in the late '90s. Pandit took over at Citigroup after Weill's
friend, Chuck Prince, lost the job.
Asked what
he thought their reaction would be, Weill replied, "I don't know. You'll
find out."
A Citigroup
spokeswoman declined to comment. A JPMorgan spokesman didn't immediately return
a message seeking comment.
In the same
interview, Weill showed his fondness for the industry. He credited mega-banks
for providing capital markets that helped convert communist countries to
capitalism, and moved poor people into the middle class.
"It is
really sad what is happening, and it's sad for young people," he said.
"This was an industry that attracted a lot of really terrific
people."
Weill
retired as CEO of Citigroup in 2003 but remained chairman until 2006, building
it into a giant that offered both consumer and investment banking.
Asked about
his about-face, Weill said he had been getting his thoughts together over the
past year.
"I
think the world changes," he said, "and the world that we live in is
different than the one that we lived in 10 years ago."
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