Citigroup’s cast of thousands

Citigroup has attracted the attentions of that which it most fears, the (potentially) activist hedge fund investor. But Edward Lampert’s $800m (or 0.3 per cent) stake in Citigroup may merely be a benign bet on a stock that looks cheap.

Chad Brand, from Peridot Capital, thinks so: “The purchase makes sense given that Lampert is a value guy (Citi trades at a 10 P/E and yields 4%) and his hedge fund is big enough that large cap stocks are the only kinds of investments that he can really take a meaningful position in without buying an entire firm.”

But, for Citi, the problem isn’t so much Lampert’s stake but the heat that comes with it.

Citigroup shares rose 4.2 per cent on the news - their biggest one-day gain since before Chuck Prince became chief executive, which has got to be a touch embarrassing. The last time the shares had a move of that magnitude was back in April 2003.

Plus Lampert’s buy just encourages people to ask more awkward questions - about size, about management and about culture.

Crossing Wall Street earlier this week was baffled by the sheer numbers at the top of the bank. By Eddy Elfenbein’s count, the list of members of the bank’s management committee runs to 110. We make it 115. But either way - that’s a lot of people.

“Citigroup has expanded its Management Committee allowing for greater exposure and more opportunities for some of our most talented senior managers,” says the bank’s website.

“I have no idea how 110 people get together to run a company,” writes Elfenbein. “Where do you put all the chairs?”

An FT Alphaville scout around shows that by comparison Morgan Stanley’s inner circle runs to a positively manageable 21 people, while JPMorgan Chase comes in at 49. In fairness, Citigroup’s “operating committee” has a more moderate 39 members against JPMorgan’s 14.

In market cap terms of course, both JPM and Morgan Stanley are a good deal smaller than Citi.

At Bank of America, the situation is unclear. The bank’s website has only eight management biographies. The investor factbook lists a ‘leadership team’ of only 10. A call to BofA to enquire how they run a company of approximately the same size of Citi on such meagre resources, prompted the promise of a return with numbers when the net is cast a bit wider.

It’s fiendishly difficult to know that you’re comparing like with like in these circumstances. But maybe that doesn’t really matter. When the complexity, or the internal politics, of a company require 115 people to be listed as part of the inner management circle on a company’s website, you have to wonder.

This entry was posted by Helen Thomas on Thursday, May 17th, 2007 at 10:25 and is filed under Capital markets, Hedge funds. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.