What happened at Citi? There has been a lot of speculation about why John S. Reed is out as chairman and co-CEO of Citigroup. Fortune magazine, for example, says the board wrangled for eight hours over whether Reed or co-chairmen Sanford I. Weill should leave. Reed reportedly was willing to leave but didn't want the 67-year-old Weill to stay on forever. Reed, 61, and his supporters on the board insisted that Weill agree to find a successor within two years. How meaningful that commitment is remains to be seen. As Fortune says, there are many ways for Weill to get around the compromise. The departure probably was more complex. First, Reed's retirement should have come as no surprise. He was effectively demoted last year when Weill was given responsibility for most of Citigroup's operating divisions and Reed was put in charge of planning the company's approach to the Internet. One could argue he was kicked upstairs.Reed appeared to be fixated in his past experiences. He never seemed to get over the trauma of his early years at the bank, when he was placed in charge of the hemorrhaging retail bank. Development of the unit created a huge drain on Citicorp's profits, embittering the company's wholesale bankers, who saw their bonuses reduced or eliminated. They called for Reed's head, but he was protected by former chairman Walter B. Wriston.Eventually, Reed's consumer bank became Citigroup's money machine, and the wholesale bank became its albatross. Ever since, Reed has expressed disdain for corporate banking. He has frequently said it isn't clear whether, on a net-net basis, corporate banking made any profits throughout Citicorp's long history.Weill comes from a different perspective. He relishes investment banking and deal-making. And that's what Citigroup's old corporate banking has become. Most important, it's throwing off tons of profits, overshadowing the consumer bank.On top of that, in contrast to Weill, Reed followed an extremely cautious strategy even within the consumer bank. Hurt by attempts almost two decades ago to expand Citigroup's reach across the country, he has shunned such expansion although conditions have changed.Reed has preferred to pick the low-hanging fruit, focusing on consumer business in Third World countries where there are few consumer protection laws and where high interest rates and fat fees could be readily charged. For the company as a whole, the tide has turned in the past year or two. The consumer bank still accounts for about half the company's earnings, but its growth has been slowing as the corporate business booms.But even in the consumer area, Weill tends to be far more aggressive than Reed. Despite Citi's long-standing distaste for being seen as a "commercial bank," Reed fundamentally is a banker, and has shunned the most egregious, high-powered types of consumer marketing that Weill seems to lust after. For instance, a recent article in Crain's New York Business reported that Citi recently hired and promoted "investment salespeople in its bank branches who have been previously employed by discredited brokerage firms known for high-pressure techniques."In its consumer business, Weill is taking a page from Primerica, the former Travelers subsidiary, that focuses its business on relatively poor people whose average income is about $30,000 a year. If Primerica's aggressive approach could work with Citigroup customers, consumer profits could rise sharply.Also, Weill seems to be far more aggressive in cost-cutting than Reed. Travelers was relatively stingy with its employees and following the merger, moves were taken to reduce employee costs. Insiders say that many former Citicorp bankers have received no raises since the merger. Even from an historical perspective, Weill is more in tune with Citicorp than is Reed. For decades, Citi dreamed of becoming a nationwide bank. Reed remembers how difficult it was to turn around the thrifts in California and Chicago that Citi bought in the early 1980s. But now that Citigroup seems more expert at cross-selling its products, having a nationwide branch network might make sense.All this might be insignificant if Reed had had the board firmly on his side. But since Citicorp's merger-of-equals with the Travelers Group in 1998, his power over the board was weakened. It was divided about equally between the old Travelers and the old Citicorp directors.Such mergers imperil CEOs. It is believed to have been the reason behind the downfall of John McCoy at Bank One Corp., following Bank One's merger last year with First Chicago NBD Corp. In contrast, Hugh McColl has held onto his CEO job at Bank of America Corp. despite a plunge in the value of its stock.Under Weill, Citigroup is ready to pounce. Armed with $50 billion in cash, it seems prepared to go on a shopping spree."Acquisitions are the core competency of Citigroup," Marjorie Magner, who heads Citibank NA and Primerica, told a group of investors last month at a meeting in Laguna Beach, Calif., sponsored by Banc of America Securities, a unit of Bank of America.Where the money will be invested remains a mystery, but some analysts believe potential targets could be Bank One, First Union Corp. or Bank of America.Citigroup directors must have pondered whether Reed was the right man at the right time. The financial world has changed dramatically as the process of consolidation and convergence accelerates. Thus, although Reed is younger, Weill represents the new realities, whether or not they are appealing.

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