Rubin’s Citi Escape

What does yesterday’s news out Citigroup portend for the future?

Citi’s Board of Director Robert Rubin resigns his position while news “leaks out” that the bank is looking to sell a controlling stake in its Smith Barney brokerage position to Morgan Stanley.

Rubin, former Treasury Secretary under President Bill Clinton, was a member of President-elect Barack Obama’s transition team. He may be one of the few Clinton members not yet named to a White House post.

Remember Rubin was instrumental in the repeal of Glass-Steagall Act, a Great Depression-era regulation designed to keep banks, securities firms and insurance companies separate.

Days after the repeal, which allowed Citi’s then-Chairman Sandy Weill to build his Uber financial services company by rolling up, Travelers Insurance, Smith Barney and a number of smaller acquisitions under the Citi banner, Rubin then left the Treasury Department to be replaced by Larry Summers, who is soon to be Obama’s director of the White House National Economic Council.

Obama’s Treasury Secretary-designate Tim Geithner was Under Secretary of the Treasury for International Affairs under both Rubin and Summers prior to being named NY Fed president. Geithner is said to be a protégé of both men depending on who you ask.

Is anyone else seeing a pattern here?

Once Rubin finished his Goldman-required public works, he joined Weill in the chairman’s suite along with John Reed. And as they say the rest is history.

So on the same day Citi is said to be speaking with Morgan Stanley about Smith Barney under the guise of forming a Thundering Heard II to compete with Bank of America’s recently acquired Merrill Lynch brokers.

Well if you believe – as I do – that Citi is slated to be nationalized as I have said in earlier posts, than this is all part of the unwinding. Yes the Smith Barney deal will probably be announced tomorrow – on a Sunday before Asian markets open – but it is only an incremental move at best.

Citi will be unwound of all it worthy assets over the course of the next two months and then will be assumed by the government. It’s too big to fail even after the upcoming fire sales.

Let’s hope some of the capital raised by these sales will be used to preserve the balance sheet and not pocketed by management so that the final cost to Uncle Sam on a future Sunday rescue is not as large. But given all the connections cited above I would not bet on that.

See you Tuesday if tomorrow is quiet.


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