There were a great many fascinating moments in the now-legendary Squawk Box interview of former Citigroup chairman Sandy Weill, in which the creator of the Too-Big-To-Fail model told an astonished Andrew Ross Sorkin that it was time to break up the Too-Big-To-Fail banks. But one moment in particular flew under the radar:
SORKIN: But did this come to you in 2008, 2009, was there a conversation you had with someone, because this is a true revolution.
WEILL: Change. You know I think it is something I’ve been thinking about a lot over the last year and I wanted to really get my thoughts together before I said anything. But I think good things are simple and I think what I’m saying is very simple.
For the moment we can ignore the fact that Weill throughout the interview kept patting himself on the back for his "good thing" of an idea. (Although, if close attention is paid, one does get the impression that Weill sincerely believes he came up with the "break up the banks" idea on his own, and it’s almost like he’s preparing to take credit for it if it happens; this is just one of the many layers of delicious comedy that can be peeled back through careful re-examination of this interview). We can just call all that background noise for now.
Instead, let’s just focus on the "when" question Sorkin raised. Because interestingly enough, Weill addressed this very issue at the close of the year Sorkin mentioned, 2009.
It was back then that Weill’s former co-C.E.O. at Citi, John Reed, paved the way for Weill’s future conversion by issuing his own mea culpa on the issue of Too-Big-To-Fail. Reed wrote a letter to the New York Times on October 22, 2009 calling for the same division of commercial banks and investment banks, saying the repeal of the Glass-Steagall Act, which had kept those companies separate, was a mistake.
"I would compartmentalize the industry for the same reason you compartmentalize ships," Reed told Bloomberg later on. "If you have a leak, the leak doesn’t spread and sink the whole vessel. So generally speaking you’d have consumer banking separate from trading bonds and equity."
So how did Sandy Weill take the news that his former compadre, the man who helped build the Citigroup model with him, had taken to weeping his regrets into the New York Times letters page? Like a knife in the back, that’s how he took it. When interviewed by the Times a few months later, he had this to say:
When asked about Mr. Reed’s apology, Mr. Weill says: “I don’t agree at all.” Such differences, he says, were “part of our problem.”
In that same article, published in January of 2010, Weill was asked to speculate about what had gone wrong at Citigroup, and whether any of it was his fault.
Remember, by that time, Weill had had over a year to think about the fact that Citi had required a $45 billion federal bailout and had also needed hundreds of billions of dollars more in federal guarantees to survive. This was not a spur-of-the-moment question. This question – what the hell happened? – was one he’d had ample time to reflect upon. So what was his answer? Was the Too-Big-To-Fail model in any way at fault?
Mr. Weill says that the model on which he built the company was not at fault, that it was the management that failed. For this, he accepts partial responsibility.
"One of the major mistakes that I made was my recommending Chuck Prince," he says of his handpicked successor, who ran the company from 2003 to 2007. Mr. Weill blames Mr. Prince for letting Citi’s balance sheet balloon and taking on huge risks.
Amazingly, in that same interview in which he blamed the decline of Citi on poor Chuck Prince, Weill also told the Times that he had "no regrets" about the hiring of former Treasury Secretary Robert Rubin, the Clinton-era official who helped legalize the Citi merger ex-post-facto by agitating for the repeal of Glass Steagall.
What’s incredible about that is that it was Rubin who urged Prince to tear his clothes off and jump in the giant gurgling pool of deadly risk that was the mortgage-backed derivatives market. As one Citi executive later told the Times:
"Chuck was totally new to the job. He didn’t know a C.D.O. from a grocery list, so he looked for someone for advice and support. That person was Rubin. And Rubin had always been an advocate of being more aggressive in the capital markets arena. He would say, 'You have to take more risk if you want to earn more.'"
So, getting back to the point, it appears that Sorkin did get something right in that infamous interview: Weill did have a major change-of-black-heart sometime between 2009 and last week. In 2009 he was so far from recognizing that the Too-Big-To-Fail model was faulty, or that he’d done anything wrong, that the only “mistake” he could cop to in public was ... depriving Citigroup of his continued leadership!
So what changed? Well, one astute friend of mine in the investment world forwarded some information that might shed light on the issue.
Some background: in the CNBC interview, Weill was asked about the compensation issue. "I think compensation is important," he said. But, he added, "I think right now everyone's shooting at compensation. I'm glad I'm not working."
Again, we can leave aside the background noise, i.e. the fact that Weill, in the middle of a prolonged unemployment crisis affecting millions, is joking about how glad he is that he’s not working so that he doesn’t have to take any shit about how much money he makes.
But how much did Weill make, back when he was saddled with a job? Well, according to a Forbes report in 2001, he pulled in $785 million over five years, cashing in $196 million of stock options in 2000 alone.
Then, in October of 2003, in violation of its own policy against buying its own shares from its own employees, Citi let Weill sell a quarter of his Citi shares back to the company for $264 million. This was when Weill was stepping down, clearing the way for Prince to come in and take the blame for destroying the company.
The deal then was 5.6 million shares at $47.14 a share. If 5.6 million shares was just a quarter of what Weill owned, that means he must have still been sitting on 16.8 million shares even after that 2003 stock sale.
So: if he had sold all his stock at that very moment in 2003, he would have made about $792 million. He must have felt pretty stoked about that pile of shares when he walked out the door that year.
Fast forward to this summer. On the day he gave that interview to Sorkin on Squawk Box, Citigroup shares traded at $25.79 at the close, which doesn’t sound too bad, until you figure in the fact that the company did a reverse stock split last May. Through that move, Citi turned every ten shares into a single share.
So to put this another way, Weill’s shares are actually worth ten times less now. If the stock traded at $25.79 on the day Weill blabbed to Sorkin, they were actually worth $2.58 to Weill.
To sum up: Weill was sitting on $792 million worth of shares when he left in in 2003. But fast forward a few years, and Weill’s 16.8 million shares, if he hasn’t gotten rid of them already, are now worth a total of $43,344,000 – basically nothing at all. Hell, there are black basketball players who have more than that!
Anyway, one has to wonder if Weill’s nagging poverty had anything to do with his change of heart. A few years ago, when he was still blasting Reed, he probably thought Citi would bounce back. Citi was trading between $3-$4 back then (pre-split). How could things get any worse? He couldn't have imagined that two and a half years later, the stock would actually be lower. Could the shock of that ugly truth have played a role in his "good thing" idea?
It was strange that Squawk Box didn’t wonder about this question. As my friend put it: “I was floored that Sorkin and the other talking heads didn’t ask Weill about his Citi shares. This is the money business, and they didn’t ask the guy about money? Now we’re shy?”
Who knows if Weill managed to cash out earlier, or hedged somehow. But it’s certainly fair to wonder if maybe he didn’t, and what actually changed his mind about Too Big to Fail is that it transformed him from a God into the proud owner of $43 million lousy dollars, practically a regular person (if you exclude his prior earnings, of course).
As Scott Glenn’s "Roger the drug dealer" character icily complains in Training Day when Denzel and his corrupt LAPD pals dig up his ill-gotten nest egg: "Fucking vampires want my pension!" All those years of hard work stealing the world's money, and it's gone in the snap of a finger!
Poor Sandy’s pension is gone. No wonder he’s rethinking things.
Training Day (2001)