Tags: Ross | Citigroup | too | complex

Wilbur Ross: Banks Have Gotten ‘Too Complex to Manage’

Wednesday, 17 Oct 2012 09:17 AM

U.S. banks might have grown way “too complex” to handle and need to rethink their business models, said venture capitalist Wilbur Ross, chairman and CEO of WL Ross and Co.

Citigroup CEO Vikram Pandit stepped down unexpectedly, catching Wall Street off guard.

The bank’s chief operating officer, John Havens, stepped down as well, sparking talk the board forced both executives out over strategy and operational issues.

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The move is the latest negative headline for Wall Street’s big banks, with JPMorgan Chase racking up a $5.8 billion trading loss earlier this year.

Shortly afterward, former Citigroup CEO Sandy Weill suggested big banks be broken up, pointing out they have become too large for even the best executives in the industry to supervise.

Size notwithstanding, banks need to focus on their complexity.

“Think about a Citibank — myriad, complex businesses, each of which is difficult to understand, each of which has different risk matrices. And then compound that by an infinite amount of geography, languages, different regulations, different customs and different markets,” Ross told CNBC. “It’s a lot of complexity to have in any one organization, regardless of how well-run it is.”

Simplification is the way to go.

“I think banks in general are going to end up being much more like banks were when I was a little boy,” Ross said.

“You walked into a bank, the teller knew who you were, the lending officers knew their customers, and they did sort of simple things. They took in people’s money, paid them a little rate on it, lent it back out to people they knew, charged a little spread. I think it was a fundamental error for banks to get as sophisticated as they have, and I think that the bigger problem than just size is the question of complexity.

“I think maybe banks have gotten too complex to manage as opposed to just too big to manage.”

Ross added that instead of trying to be a one-stop shop for the global economy, banks should focus on lending to fuel economic growth.

“I think that the real purpose and the real need that we have in this country for banks is to make loans particularly to small business and to individuals. I think that’s the hard part to fill,” Ross said.

Earlier this year, the Federal Reserve rejected the bank’s capital plans and dividend increase after a stress test, CNBC reported, adding that under Pandit, the bank also sold a stake in a brokerage operated by Morgan Stanley for a low price.

Some analysts applauded the departure.

“What Pandit and Havens did was increase the uncertainty around Citi,” said Matt McCormick, banking analyst and portfolio manager at Bahl & Gaynor in Cincinnati, Ohio, according to Reuters.

“There’s a perpetual cloud of uncertainty surrounding Citigroup. There’s always turmoil ... that’s had to affect the stock price.”

Pandit, he added, might not have been the right person for such a high-profile position.

“He was not beloved by Wall Street. He was thrust into that position — he’s a hedge fund guy,” McCormick said.

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