The Ideal Christmas Gift for Mark Carney

By Roy C. Smith, Kenneth G. Langone Professor of Entrepreneurship and Finance and Professor of Management Practice

Roy C. Smith

Their action would send a clear message that good management, dependable client service and stability for investors have triumphed over unrealistic and now unobtainable ROE goals.

Banking crises take a long time to get over. It was five years last month since Charles Prince resigned as chief executive of Citigroup after massive write-offs. Prince’s permanent successor, Vikram Pandit, has now also been replaced, but the bank is still a long way off recovery.

It took Citi about 10 years to get through the last crisis, which began after Continental Illinois, the seventh-largest US bank, failed in 1984 from an excess of aggressive lending and weak credit controls. Citi, which was the most aggressive of the kick-ass lenders of that time, didn’t fail then but came close. John Reed took over as chief executive in 1984 and, under close supervision from the Federal Reserve, nursed it along. Profits from consumer banking helped offset sovereign, corporate and real estate loan losses until 1994.

It was a bleak decade for Citi and the other US money centre banks, whose credit ratings had been cut back to the low Baa levels, and whose stocks traded well below book value.

But they recovered with some help from deregulation and rising markets. By 2004, Citi was back at it again, now as Citigroup, competing for market share with other thrice-merged colossi such as JP Morgan Chase, UBS and RBS.

Though some of these banks are doing better than others, the industry is still in a deep slump.

This time, however, the crisis to which the banks contributed is far worse, and central banks are having to prop up both the banks and the US and European economies.

Read full article as published in Financial News.