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Bair Still Bearish on Citigroup

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Sheila Bair has more harsh words for Citigroup (NYSE: C), even after its recovery from the worst of the financial crisis.

The former Federal Deposit Insurance Corp. chairman blasted Citi in her new book, saying the third-largest bank "should have been led to the pillory" during the financial crisis instead of surviving with the help of government bailouts. Four years later, the third-largest bank is consistently profitable — but Bair isn't convinced.

Citigroup is "slowly getting back to health … but it's not clear to me what their long term strategy is," Bair told American Banker editors in an interview last week.

"I don't know what their strategic direction is," she added. "I don't know what their growth prospects are — I'm not sure they have them."

Bair made similar comments during a video interview with American Banker that day, saying that a failure "would have frankly long-term been in Citi's interests, because then you could have recapitalized the clean bank that might have some growth and business prospects. Now, they're better off but they're still just nursing a bad balance sheet … and that's what a sick bank does, they nurse their balance sheet and slowly get back to health."

A Citigroup spokesman responded to Bair's comments via email: "Since Vikram Pandit became CEO, Citi has returned to the basics of banking with a clear strategy focused on individual and institutional banking and on serving clients who value our global network. We are a simpler, smaller and safer organization with strong momentum across our core businesses and a distinct ability to leverage our global footprint to capitalize on the trends shaping today's operating environment."

Pandit has increasingly relied on Citigroup's extensive international operations to help boost revenues and growth since the financial crisis. That strategy has had modest success so far; Citigroup's overall loan book grew 1% from a year earlier in the second quarter. The bank, which is due to report third-quarter results next week, has sold off or closed down many operations since the financial crisis but is still saddled with unwanted assets in its Citi Holdings "bad bank."

Citigroup was one of Bair's favorite targets in "Bull By the Horns," her recently-published memoir about the financial crisis and the debates over the Dodd-Frank Act. The book also repeatedly blasts Treasury Secretary Timothy Geithner, especially for advocating bailouts of the largest financial institutions.

Geithner is expected to leave after the coming election. In the interview, Bair declined to name the people she would like to see replace him, but said she wants his successor to be "a Treasury secretary who will deal with fiscal problems … I would actually like to keep the Treasury out of bank regulation."

Bair also cited a series of regrets about how the financial crisis had been handled: the public private investment partnerships (PPIPs), which never really got off the ground, would have been a promising way to bring in private capital to the financial system while cleaning up bank balance sheets. She also favors banning the so-called "revolving door" between regulators and financial institutions, and says policymakers should forbid examiners from eventually working for the institutions they oversee. In return, examiners should make more money, Bair said.

"Bank examiners — that should be a lifetime calling. Pay them more, give them more status," she said.

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Comments (2)
Having worked closely with examinations staffs at the Federal Reserve Board and FDIC, at least twice as long as Ms. Bair, bank examination is not a "lifetime calling." Certainly the bank regulators should be able to hire the best and the brightest bank examiners, but constantly being on the road and away from home is not an attractive lifelong profession. Examniers should have a pay raise to a level that attracts smart and dedicated young professionals with masters level educations in Financial Economics and Accounting. But, like the bright young lawyers at the Justice Department or the SEC or at public defenders offices, it shuld be expected that they will move on after contributing to the public interest and learning a great deal. The revolving door is a problem, but many times some of the best examiners may serve the interests of prudential regulation by being bank managers and having been exposed to the other side of risk management. Reg&Enforce
Posted by Gerald Hanweck | Friday, October 12 2012 at 4:09PM ET
"Citibank has returned to the basics of banking with a clear strategy.... We are a simpler, smaller and safer organization..." Are you kidding me!!!!! That's what they said the last 3 other times they were bailed out.
Posted by TxTim | Monday, October 15 2012 at 12:31PM ET
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