Citigroup Pioneer Now Says Big Banks Bad

            According to an article in the July 26, 2012 issue of Wall Street Journal, Sanford Weill, the man who built Citigroup, the largest banking empire in U.S. History, has now said that big banks are a mistake.   He now admits that allowing banks that are “too big to fail” sets up taxpayers for the cost of future bailouts.  In 1998, it was Mr. Weill who almost single-handedly persuaded Congress to repeal the Glass-Steagall Act. But he now believes that the commercial banks who accept FDIC backed deposits should not be allowed into the high risk business of investment banking, since this allows bankers to gamble with taxpayers’ money.    In an interview on CNBC, Mr. Weill, in just a few minutes, repudiated his entire life’s work.   “Mistakes were made,” said Mr. Weill.   

            In the back pages of this same issue was another article about Sanford Weill’s recent “about face,”  entitled Sandy Weill Regrets Breaking Glass, by David Reilly.   Reilly Says that Weill’s change of heart, though too late, is still welcome--but Weill is only now catching up with what the market has already discovered. He points out that the stock price of really big banks, like Citigroup, J.P. Morgan Chase, and Bank of America is not doing very well compared to smaller banks.  The stock of these three are trading at a steep discount (the total value of all outstanding shares at the current share price adds up to less than half the net value of the corporation, in terms of tangible assets)  whereas the share price of smaller banks adds up to 1.5 to 2 time the net value.  So a case can be made, says Reilly, that if the law were to break up the mega banks and restore Glass-Steagall, though this would protect taxpayers and make the system safer, the main beneficiary might be the banks themselves. By breaking banks into smaller, more manageable units, they might eventually be restored to profitability.