A dubious course
Vail, CO, Colorado
This is an open letter to Barney Franks, chairman of the House Financial Services Committee, and Christopher Dodd, chairman of the Senate Financial Services Committee.
Gentlemen: The Wall Street Journal reported last week that Morgan Stanley Co. is working on a joint venture with Citigroup to create the world’s largest brokerage firm. This, as we are told, will involve Morgan Stanley paying Citigroup about $2.5 billion to take over Citigroup’s Smith Barney operation into a combined brokerage that will be owned 51 percent/49 percent by Morgan and Citigroup.
As background, we note the following: In November, Citigroup received a $45 million taxpayer infusion. Morgan Stanley received a $10 million infusion of taxpayer funds in the same period. Citigroup today has more than 300,000 employees worldwide (an interesting management challenge).
The business plan for the combined Morgan/Barney brokerage of about 20,000 brokers is to emphasize advising investors and companies for a fee ” as opposed to risk-taking with their own funds (for example, lending in the credit market).
This maneuver by Citigroup and Morgan Stanley ” supported by $55 billion of U.S. taxpayer funds ” raises a number of questions. For example:
1. How does this joint venture demonstrate a positive move to enhance the availability of credit to businesses and families?
2. Are we, as taxpayer-investors in these very large organizations, going to have a say in executive compensation, including tax-free bonuses, jet planes, etc.?
3. Is anyone capable of effectively managing an organization of more than 300,000 employees? Citigroup’s recent record is not, nor is our U.S. government’s record, any better than General Motors, for example, as large organizations go.
4. This joint venture by Citigroup and Morgan Stanley, supported largely by the U.S. taxpayer, appears to be essentially a move to enhance their competitive position in the brokerage business. Our tax funds should not be used for this purpose.
5. Where is the direction and accountability that we should expect of our treasury secretary and the Federal Reserve in these critical times?