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Saturday, 3 November 2007

The difference between Citigroup and Northern Rock

Some revealing differences between Citigroup and Northern Rock.

Citigroup is the world's largest financial institution. Being American it is hardly surprising that they have some exposure to the sub-prime loan market and to CDO's. Their Chairman promised shareholders that there would be no surprises, but it looks as though Halloween brought Citi more tricks than treats and by the time I publish this post, the Chairman may be gone, forced to resign by shareholders. Citi is a big bank, and the one trick pony in Newcastle it is a major player in many partkets and many sectors. It also hires more talent in a week than Northern Rock hires in a lifetime, so it will not fail.

Contrast that with Northern Rock, where the board did little to address the problems and the Chairman is still there and the MD was there far too long. Equally reprehensible is the performance of the UK regulators, who between them couldn't decide what to do and in the end left it to the tax payer to pick up the tab. The Federal Reserve would never let it go so far. The blame for this problem probably rests with Gordon Brown who passed responsibility for bank supervision to the FSA. For all its staidness, the Bank of England knew what it took to run a bank, whereas the FSA palpably did not.

The FSA may know how to administer a regulatory system, but that is not what is required to understand whether a bank is well run and whether the management is making the right decisions. Hence all the wrong decisions have been made and we have to listen to politicians telling us how throuwing £23 billion of tax payers money at a problem is nothing to worry about.

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