I have a lot of thoughts about the quasi-nationalization of Citigroup, because I am a Citibank shareholder. Some of those shares were acquired in the traditional capitalist manner; my husband placed an order through his online brokerage account. (We thought we were so smart, buying shares at $5 and change!) Some of the Citi exposure came through socialist means: I’m a U.S. citizen, so Timothy Geithner doubled down on my stake.

What happened? Subprime mortgages and global financial collapse aside, Citigroup may have become too big to manage. It is definitely too big for another bank to take over; Chase was willing to take over Washington Mutual accounts, but it could not handle the account volume of Citi, too.

Citibank has long pushed the financial supermarket idea. By offering banking, brokerage, and insurance services under one umbrella, Citi hoped to make it easy for customers to deal with them. It also hoped to squeeze more profits out of each person who walked through the door. But it was always a tough sell. Savvy investors don’t want any one institution to know everything about them; they’d rather play a few different companies off of each other. They’ll shop around for an extra 0.50% on a CD, work with a few brokers to get the best stock ideas, and move their insurance business whenever they find a better premium.

Also, diversifying among several firms reduces the risk of problems – from the Madoff risk at one extreme to the simple headache of limited access when something goes wrong. If you lose one credit card on an overseas trip and need to get home, it’s nice to have another card with a different bank. If a teller is mean to you and you decide to move all of your business in a huff, it’s easier if there isn’t that much to move.

The underlying problem with the financial supermarket is management. How can anyone be on top of everything from how nice and knowledgeable the tellers are to the risk levels of complex derivatives trades? The President of the United States has an easier job, because the president isn’t expected to post a profit. Also, he can print money and drop nuclear bombs to get things done. Vikram Pandit, the CEO of Citigroup, doesn’t have those nifty tools. He couldn’t even split the company up into more manageable pieces, because that would have taken away critical assets needed to prop up the banking business. (more…)