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From: "Daniel Glover" <[EMAIL PROTECTED]>
Date: August 18, 2008 11:56:29 PM PDT
To: <[EMAIL PROTECTED]>,
<[EMAIL PROTECTED]>, <[EMAIL PROTECTED]
>
Subject: [IPCUSA] Breaking up big banks questioned as losses mount
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Breaking up big banks questioned as losses mount
http://news.yahoo.com/s/ap/20080816/ap_on_bi_ge/wall___main_2
By JOE BEL BRUNO, AP Business Writer Sat Aug 16, 1:11 AM ET
NEW YORK - America's biggest banks have suffered unprecedented losses
from
the ongoing credit crisis, and that's made some investors question
whether
the big financial conglomerates should be broken up in order to survive.
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e
Break-up advocates, who for months have been clamoring for Citigroup
Inc. to
be dismantled, got some validation of their viewpoint this past week.
Europe's UBS AG - created through the combination of Swiss Bank Corp.
and
Union Bank of Switzerland in 1997 - on Wednesday laid the groundwork
to tear
up its business model after another quarter of steep losses.
Though the UBS announcement was expected, it was nonetheless a departure
from what executives promised during a wave of big bank deals that
began in
the late 1990s. The creators of global banks like Citigroup, JPMorgan
Chase
& Co., and HSBC Holdings PLC had promised customers and shareholders
that a
diverse set of businesses would shield them from economic volatility.
But, those models haven't sheltered the banks from the subprime mortgage
crisis that turned into a dislocation of the credit markets. Major
global
banks have taken more than $300 billion in asset write-downs, and
organizations like the International Monetary Fund believe that amount
could
reach $1 trillion.
"The whole idea was, 'let's be so unbelievably diversified that we
won't be
affected,' but when the credit markets seize up, no matter what kind of
financial company you are, everything seizes up," said William Smith,
president of New York-based Smith Asset Management. "The UBS statement
basically shows the model is a failure."
That's not what former Citigroup Chief Executive Sanford Weill
envisioned
when the company was created in 1998 by the combination of Citicorp and
Travelers Group. He maintained that offering a mix of financial
products -
such as investment banking at Salomon Brothers, brokerage services
through
Smith Barney, and Citibank's retail and consumer banking - would
protect the
company.
Critics like Smith believe that Citigroup is worth more split up.
Current
CEO Vikram Pandit has rejected the idea, believing the company should
come
through the credit crisis in one piece.
But, John Reed, who as head of Citicorp forged the deal with Weill's
Travelers Group, commented recently that the universal bank model didn't
work. That's only been highlighted by Citigroup's stock price, down 71
percent from its 52-week high of $49.
Talk about how Citigroup and others should be structured will only
intensify
now that UBS appears to have turned its back on its "one bank" strategy.
Switzerland's largest bank posted a hefty $5.1 billion write-down for
the
second quarter, and disclosed plans to separate its ailing investment
bank
from healthier businesses.
And, concerns about the execution of the business model are spreading,
even
among those who support the idea of financial conglomerates.
Ladenburg Thalmann's Richard X. Bove, one of the most outspoken banking
analysts since the credit crisis began last year, wrote in a note that
the
"concept behind the creation of JPMorgan Chase has broken down."
Bove said JPMorgan's acquisition of Chicago's Bank One in 2004 was
intended
to beef up its consumer business, including banking and credit cards.
That
would help offset problems if the capital markets, like investment
banking
and related areas, were to falter. The problem is that both markets are
currently weak.
He said JPMorgan's exposure was hurt further by the acquisition of
crippled
Bear Stearns in March. Still, despite all this, Bove feels the model is
viable - and that JPMorgan can work through the troubles over a number
of
years by cutting costs and refining its businesses.
"No steel company can sell steel when auto manufacturers aren't selling
cars, and no bank can make big profits when there's a weakness in the
housing and credit markets," he said. "They have to ride out the cycle,
minimize the losses, and maximize profits when the cycle returns. You
can't
restructure a company to avoid that cycle."
"In 1985, there were 14,500 banks in the U.S. - and now there's
7,200," he
said. "For the past 23 years, six of them went away each week. The big
universal banks might get hit, but they
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