This morning Sandy Weill casually forsook all that which he once held dear by calling for the break up of big banks. Speaking on CNBC's Squawk Box, Weill said the monsters he created should be split up and "do something that doesn't risk taxpayer dollars." The thud you heard around 8:30am this morning was the sound of jaws simultaneously dropping across the financial world.
Some perspective is in order. Sandy Weill essentially created the idea of jamming together investment banks and those providing retail and commercial banking services when he merged his Travelers Group (TRV) with Citicorp [now Citigroup (C) since 1998]. Since such a merger was forbidden by the Glass-Steagall Act, Mr. Weill persuaded then-Secretary of Treasury Bob Rubin to help push through legislation repealing the Depression-era regulations.
Speaking of Weill, in the attached video Todd Schoenberger of the BlackBay Group says "When Bill Clinton repealed Glass-Steagall this guy was first in line saying 'hey this is great, let's criss-cross the lines and make this the biggest bank on the planet'. Now he's coming back and saying 'maybe this wasn't such a great idea.'"
After Weill was pushed out of Citi in 2003 the company bought back $300 million worth of his stock at an average price of over $47 a share. Within 6 years the giant institutions Weill effectively made possible had nearly destroyed the global financial system. Adjusted for a 10:1 reverse split, Citi shares bottomed below $1 and are only $2.50 each currently. Weill kept the $300 million.
Today, Sandy Weill advocating for what amounts to reinstating Glass-Steagall is akin to Darth Vader turning his back on evil. It's Dr. Frankenstein throwing his monster into the torch wielding mob. It's like... it's not like anything we've seen before. It's the creator of the mega-bank destroying his own work.
The ripples of Weill's titanic flip-flop have yet to hit shore. Testifying before the House Financial Services Committee regarding the fading Libor scandal, current Treasury Secretary Tim Geithner was immediately peppered with questions regarding Weill's comments. Geithner responded with something akin to "I'll look into it."
CNBC's Eamon Javers spoke to former NY Governor Eliot Spitzer, who was once at the center of the Wall Street reform movement. Via his Twitter stream Javers quoted Spitzer as saying Weill's about-face "changes the entire debate about bank restructuring and puts enormous pressure on those who continue to maintain a broken system. For him to acknowledge that the system should be fundamentally reformed is hugely important."
With Weill's change of heart there is one last major advocate for business as usual. As it happens that man is Jamie Dimon, the current CEO of JP Morgan (JPM) and Weill's protegee at Citigroup until Weill fired him in 1998.
Whatever Dimon did to displease Weill 14 years ago it's not too much of a reach to suggest Sandy's not quite over it just yet.
What do you think about Weill's dramatic reversal? Should the big banks be broken up? Let us know on our Facebook page.
Please answer our poll question below: Sandy Weill, the man who invented the financial supermarket, called for the breakup of big banks in an interview on CNBC. Is he a... Flip flopper who made money off an idea he now says is wrong, a Wise Man who learned from his mistakes, or a Financier who has nothing to apologize for?
- Sandy Weill