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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.

Read it all.

Subject: FW: Somali Pirates in Discussions to Acquire Citigroup

November 20 (Bloomberg) — The Somali pirates, renegade Somalis known for hijacking ships for ransom in the Gulf of Aden, are negotiating a purchase of Citigroup. The pirates would buy Citigroup with new debt and their existing cash stockpiles, earned most recently from hijacking numerous ships, including most recently a $200 million Saudi Arabian oil tanker. The Somali pirates are offering up to $0.10 per share for Citigroup, pirate spokesman Sugule Ali said earlier today. The negotiations have entered the final stage, Ali said. “You may not like our price, but we are not in the business of paying for things. Be happy we are in the mood to offer the shareholders anything,” said Ali. The pirates will finance part of the purchase by selling new Pirate Ransom Backed Securities. The PRBS’s are backed by the cash flows from future ransom payments from hijackings in the Gulf of Aden. Moody’s and S&P have already issued their top investment grade ratings for the PRBS’s. Head pirate, Ubu Kalid Shandu, said “we need a bank so that we have aplace to keep all of our ransom money. Thankfully, the dislocations in the capital markets has allowed us to purchase Citigroup at an attractive valuation
and to take advantage of TARP capital to grow the business even faster.”

This is as good a time as any to remember that a few years ago Citi was the largest bank, not only in America but the world; and that the First National City Bank, successor to Nicholas Biddle’s Bank of the United States, was for many decades one of the most secure and well-managed corporations in the world.

The trouble began only when John Reed acceded to Sandy Weill’s merger plans ten years ago (and the SEC gave approval). Sandy Weill was basically just another Icahn or Boesky, an egotistical corporate raider who bought up long-established companies (e.g. Salomon Brothers, Travelers Insurance), gutted them for their hard assets and goodwill, and used the proceeds to buy a new venture to add to his towering monument to himself.

Before calling on Federal funds, Weill’s assets should all be attached. That would be fitting and moral, but there doesn’t seem to be any legal way to manage it…

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

“Yesterday Citigroup Inc. (Public, NYSE:C) hit a 52-week low and that may be the last time we see shares under $21.”

This is about six months after it hit a six-month low of $42.