An interesting tale about those Citigroup “support services”: Smith Barney used a disproportionate share of them, including physical plant, general counsel, graphic and web design, the print shop, and mail room. A lot of overhead there, with literally thousands of relatively low-paid, low-quality employees (let’s not forget all those HR costs). Shifting a good part of this expense onto Morgan Stanley is a lucky break indeed for Citigroup, and undoubtedly was one of the objectives in the sale.

Smith Barney management do not get the blame for this money-burning machine. That falls squarely on the shoulders of Citigroup’s general-services managers. During the 2001 recession they lost a major part of their internal billings when the investment-banking and bond-trading operations shrank. One day they noticed that Smith Barney (which hadn’t shrunk) was bringing in half their revenue. How amazing! And so these wise heads decided they were in the business of servicing Smith Barney, not Citigroup.

They invested millions in new print-shop toys and envelope-stuffing machines, and hired lots more dead-end drudges to man them. This would all be paid for, they thought, by finding new add-on services they could sell to the Smith Barney brokers and fund managers. A little corps of salesmen was assembled to call upon the Smith Barney people and tell them how wonderful these services would be. The services would be technologically advanced–yes! Instead of stuffing only a thousand envelopes an hour, our four-million-dollar Stuff-O-Matic can stuff eight-thousand! Wow! Why don’t you print up lots more mailers and statements, so you can take advantage of this swift deal?

The managers responsible for this cockeyed strategy came out of the old financial-printing business of the 70s and 80s. They had their eyes fixed firmly on the past.

Ooops! Investors just realized it’s not a seller’s market for financial companies. Back goes the stock to three-and-change.