The Real Significance of Sandy Weill’s ‘Break Up Big Banks’ Recommendation

The two finance personality stories of the day were Timothy Geithner’s appearance before the House Financial Services Committee for a periodic Financial Stability Oversight Council Report, and former Citigroup CEO Sandy Weill’s unexpected conversion to the “smaller banking is better” faith. As Adam Levitin and Dave Dayen recount, Geithner reverted predictably to a combination of memory lapses and a “nothing to see here” stance on Libor (oh yeah, with the added wrinkle that if there was anything to see, it wasn’t his job to look anyhow). If any other grownup said he didn’t remember things as often as Geithner does, he’d be a candidate for an Alzheimer’s ward.

But on to Weill. The former acquisition king (he and Jamie Dimon did 1100 deals) who had to get the dead in practice but still on the books Glass Steagall put down so he could consummate the Travelers-Citigroup merger, today said Glass Steagall should be brought back from the dead. He made it clear he meant a full separation of commercial and investment banking, and that commercial banks should have a leverage ratio of 12 to 15 times (that’s still generous, particularly for a bank that isn’t heavily in trading businesses). He also called for an end to off balance sheet activities (this would mean, for instance, bringing credit card securitizations on balance sheet, since they’ve repeatedly been rescued when they’ve gone sour) and using only exchange-traded instruments for hedging purposes, which he called on to be marked to market.

The Wall Street Journal Deal Journal blog gave a good recap of the firestorm of reactions on Twitter. They fell into three camps: “Huh?” “Attaboy!” and ‘Oh, so he says that NOW?” Some did highlight personal motivations: Max Keiser, that Weill wanted banks broken up so he can reassemble them (since Weill apparently thinks he will live forever, he needs something to do) and Epicurean Dealmaker, that this was a way to poke at Jamie Dimon.

I hate to find myself agreeing with Charlie Gasparino (we tangled on Lehman in 2008). Per his piece in the Huffington Post (hat tip Dealbreaker):

….it’s hard to take Weill seriously. First this is a man with an ego the size of the bank he created. People who know him say he needs media attention like an alcoholic needs a stiff drink, and he’s gotten precious little of it since retiring from the banking business six years ago. Yesterday made him feel like the same old Sandy again.

This, by the way, is the kindest thing he has to say about Weill.

But I think the significance of Weil’s volte face is a bit different. It’s a reminder that talk of reform is cheap and without consequence. Would any of these former Big Names who would love to be hauled out of mothballs (ex John Reed, who never liked the limelight and I believe is genuine) be serious about advocating change if they thought it really might happen? This isn’t a sign of a break in the elites, this is at best pandering to the 99%, or adopting a faux provocative position to get some media play. Look at how the British regulators, who have been at least willing to talk tough about banking and pushed hard for a full split between depositaries and trading firms, are in deer in headlights mode over the Libor scandal. This isn’t just being caught out at having missed a big one; there is an astonishing inability to leverage what should be seen as a God-given opportunity to put reform back on the front burner.

When I see someone like Weill or Dick Parsons putting a big chunk of their ill-gotten gains to fund lobbying or a think tank promoting tough-minded financial services reform, I’ll give the backers their due for making a sincere and serious effort to undo the considerable damage they have done. But absent that, this career death-bed conversion is a hollow and insulting gesture.

This post originally appeared at naked capitalism and is posted with permission.

One Response to "The Real Significance of Sandy Weill’s ‘Break Up Big Banks’ Recommendation"

  1. barf   July 26, 2012 at 9:36 pm
    As it says here "OVER TIME THE LEGISLATION WOULD CHANGE." The legislation came AFTER the merger. Second…NO HE DOESN'T NEED THE MEDIA ATTENTION. The problem is all about reputation…and the TOTAL FAILURE of the Bank. Just hazarding a guess but dollars to donuts "Travelers looted the bank" by and large. I think as a consequence the days of Citibank are number before none other than Jamie Dimon himself gobbles it up…ironically enough. "And without a doubt just the thought of this causes Sandy Weill to explode with anger." At that level…no matter how retired you are…you never stop winning…nor hate losing just the same. Especially to a guy you fired .