Citigroup Executive Meltdown

Wilbur Ross: Banks 'Too Complex to Manage'

By Bruno J. Navarro | CNBC, October 16, 2012

In the wake of a major leadership shift Citigroup ([ticker symbol] C), billionaire investor Wilbur Ross said Tuesday that banks have become "too complex to manage" and will probably return to a simpler business model.

On CNBC's "Fast Money," Ross expressed surprise at the sudden departure of Citigroup CEO Vikram Pandit and COO John Havens.

"Normally, at an institution, you wouldn't make such changes in both CEO and COO without consulting the regulators," he said.

Ross added that he believed financial organizations had become labyrinthine.

"Think about a Citibank - myriad, complex businesses, each of which is difficult to understand, each of which has different risk matrices. And then compound that by an infinite amount of geography, languages, different regulations, different customs and different markets. It's a lot of complexity to have in any one organization, regardless of how well-run it is," he said.

Ross predicted a simplification in the way financial institutions look in the future.

"I think banks in general are going to end up being much more like banks were when I was a little boy," he said. "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 knew, charged a little spread. I think it was a fundamental error for banks to get as sophisticated as they have, and I think that 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."

Ross rejected the idea that commercial banks needed to be in the investment-bank business.

"The fact that customers need investment banking services doesn't mean they need to be provided by commercial banks," he said. "I think those are two different questions. I'm not aware that there was great lack of investment banking services available prior to the repeal of Glass-Stegall.

"I think they're going to simplify themselves, and I think that's to the better."

The 1933 Glass-Steagall Act erected barriers keeping commercial banks separate from investment banks. Its restrictions were repealed in 1999.

Wilbur cited the need for more straightforward financial services.

"I think that the real purpose and the real need that we have in this country for banks is to make loans particularly to small business and to individuals. I think that's the hard part to fill," he said.

"Our capital markets are sufficiently sophisticated and sufficiently deep that most large corporations have plenty of alternative ways to find capital. Smaller companies and private individuals don't have really the option of public markets. They're the ones that most severely need the banks. I think they've kind of lost track of that purpose."

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