Wilbur Ross: Banks ‘Too Complex to Manage’

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Wilbur Ross: Banks 'Too Complex to Manage'

Billionaire investor Wilbur Ross weighs in on Citigroup shake-up and says banks will probably return to a simpler business model.


you’ve been on boards, wilbur. you’ve seen shake-ups. you’ve probably instigated a few yourself. that’s possible. tell us about the last 24 hours. you wake up, and poof, vikram is gone, vikram pandit is gone. what happened? clearly it’s the interaction between board and management that came to a head. but i also wonder how much of a role the regulators might have played. normally at an institution, you wouldn’t make such changes in both ceo and coo without first consulting the regulator. so i wouldn’t be surprised if some of the time lag that people on your show earlier complained about might not have been due to touching base with constituents such as the regulator. with your involvement in banks still, especially in the wake of the financial crisis here, i assume you have seen firsthand what regulators are doing when it comes to banks. they are, and they’ve gotten very heavy-handed of late. i think that wall street and the banks really did not distinguish themselves very well during the crisis, and what’s happening now is what frequently happens, you get an overreaction to that. there’s an old saying, bad cases make bad laws. and i think we’re seeing a bit of that. sorry, wilbur, steve weiss. from where you sit which is way above where the rest of us sit in terms of your perspective on various markets, geographies and just every business a bank could be in. how do you see playing out going forward? has the easy money been made or still plenty of opportunity in the big banks like citi, b of a, wells fargo. i think banks in general are going to end up being much more like banks were when i was a little boy. 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 kn charged a little spread. i think it was a fundamental error for banks to get as sophisticated as they have. and i think 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. what do you say to bankers, though, who say, that’s what our customs demand, our customers’ needs have grown more complex and become more international and have to hedge in different currencies all over the world at different types and different products, for example? the fact that customers need investment banking services doesn’t mean they have to be provided by commercial banks. i think those are two different questions. i’m not aware that there was any great lack of investment banking services available prior to the repeal of glass-steagall. so just to follow up, do you see the big banks breaking up then? i think they’re going to simplify themselves and i think that’s to the better, because think about a citibank. myriad, complex businesses, each of which is difficult to understand, each of which has different risks marices and compound it by an infinite amount of geography, regulation, different customs and different markets, that’s a lot of complexity to have in any one organization, regardless of how well run it is.

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