David Goldman thinks like a mensh. Man I really love the way his mind works and he's got the stuff down cold. Here he pitches a scenario.
First, Citigroup’s structured portfolio of “toxic” assets is extremely cheap and manageable now that it doesn’t have to be marked to market. You own a bunch of this garbage anyway, and fund managers turn up on your doorstep daily to pitch distressed investing. You can do a whole lot better buying a distressed bank and leveraging a distressed asset play. Secondly, you can sell off most of Citi’s operations for a modest profit. America doesn’t need another branch bank after Wells Fargo/Wachovia, Chase/Washington Mutual, and Bank of America. Citi should get out of its consumer businesses and devolve into an international wholesale bank. Its main profits should be the runoff on its portfolio, which out to be worth a lot more than $3 a share. Third, by owning a major bank you get a seat at the table of corporate America. You get a peak inside the kimono at every American corporation and the inside track on future mergers and acquisitions. The business intelligence value of owning the franchise has to be worth a few billion dollars. That’s not counting Citi’s international branch network, which would give you the inside track on a dozen countries you don’t know much about. Presuming that the Obama administration throws its political shield over the deal and hails it as a great win for the American taxpayer (presuming you pay a bit more than $3.25 a share so that the Treasury can book a profit on its own 36% of Citigroup), it could be a very wise move. I wouldn’t underestimate the governance problems of running a monster like Citi — your managers will experience great frustration dealing — but at roughly $20 billion, you can afford the experience. After all, you have to learn to run great international finance franchises some time. Why not now?
Of course Citi is too big to fail, for the obvious reason that it is too valuable to merely disappear. Once upon a time I figured Warren Buffet would buy it. Maybe Shell should, or maybe Shell doesn't need it at all. In any case, we will be learning who are really the last big capitalists standing.
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