In a recent interview on CNBC, Sanford Weill, former Chairman and Chief Executive of Citigroup, opined that “What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.” This is noteworthy because, perhaps more than anyone else, Weill is credited as being the visionary and architect of the modern megabank. From 1986 to 1997 he created the Travelers Group inc. by acquiring and consolidating a number of insurance, investment banking, and retail brokerage businesses, including Gulf Insurance, Primerica, Shearson, Travelers Corp, the property and casualty operations of Aetna Life & Casualty and Salomon Brothers, Inc. Then, in 1998, he culminated his vision for a financial supermarket when he created Citigroup through the $76 billion merger of Travelers and Citicorp. At the time, such a combination was prohibited under federal law. In an effort to stem the excesses and rampant speculation of the financial sector that led to the Great Depression, the Glass-Steagall act of 1933 had limited commercial banks from participating in the activities of insurance companies and securities firms. Not to be deterred, Weill bet, correctly, that regulators would approve of the merger and that Glass-Steagall would be repealed, which it was in 1999. Weill later boasted that he was “The Shatterer of Glass-Steagall.” The rest, as they say, is history. It turns out that Glass-Steagall was not an anachronistic vestige of some by-gone era but an important framework for continued stability. Within a decade of its removal our financial system collapsed under the weight of its own arrogance.
Sound policy or not, the timing of Weill’s conversion is curious. Many former titans of finance have spoken out about the need to reinstate some protections in the aftermath of the financial meltdown. Even John Reed, former CEO and President of Citicorp, and Weill’s collaborator during the Travelers merger, has spoken out against the repeal of Glass-Steagall for years and has apologized for his role in whole fiasco. Until now, however, Weill has made no such comments. Perhaps he was finally spurred to speak out following the revelations in May by JP Morgan’s CEO, Jamie Dimon, that the bank had lost $2.0 billion (the amount was later revised to $6.0 billion and is likely to grow higher) on a failed “hedging” strategy. Dimon had been Weill’s protégé and chief lieutenant during the 1990s helping to build Travelers but was fired by Weill from Citigroup shortly after the merger. Following his departure, Dimon went on to become CEO of Bank One and eventually the head of JP Morgan where he developed a reputation as one of the most respected executives on Wall St. A cynic would observe that by coming out in favor of Wall St. reform at this time, Weill can simultaneously improve his own legacy while undermining that of one of his principle rivals. Of course, this could all be just one big coincidence.