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Home Depot's Job Cuts: What Took so Long?

When I first read this yesterday I thought, “good idea”. After a minute or so I then thought, “what?”.

Home Depot (HD) announced yesterday that there will no longer be a Human Resource manager and Human Resource Supervisor in every one of the 1,970 U.S. stores it owns.

The change will affect about 2,200 employees and will result in about 1,000 job cuts.

They really had both a HR manager and supervisor at each location? Really? I can’t find anyone to help me in the paint department but it would seem there is a HR person there for employees at all hours to answer the two or three questions a month that may come up.

The problem here is that this may be indicative of the fat and waste that is still there despite the downward spiral in results for the past year and a half. I have worked in the past for companies that had multiple locations and not a one had HR managers at each of the locations.

Now HD will have 230 District Teams that will shoulder the HR duties. This is the set up I would be willing to bet 90% of corporate America has (still may be a bit too heavy). It also speaks to additional issues. If HD has gone to this length to communicate with employees at the store level and have someone there for immediate response to questions the fact that employee moral is so low is really shocking.

It means that either these people were not trained properly or that the policies enacted are so poor, efforts to right the ship are going to have to be extraordinary to fix it now that the immediate contact will be gone.

Now, HD has cut corporate HQ staff level in order to concentrate on customer service. But, aren’t most of our customer service complaints due to dealing with unhappy, poorly trained employees? If they can’t fix that issue with HR in the building, one has to question their ability to do it when they are removed…

Disclosure (“none” means no position):None

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Home Depot’s Job Cuts: What Took so Long?

When I first read this yesterday I thought, “good idea”. After a minute or so I then thought, “what?”.

Home Depot (HD) announced yesterday that there will no longer be a Human Resource manager and Human Resource Supervisor in every one of the 1,970 U.S. stores it owns.

The change will affect about 2,200 employees and will result in about 1,000 job cuts.

They really had both a HR manager and supervisor at each location? Really? I can’t find anyone to help me in the paint department but it would seem there is a HR person there for employees at all hours to answer the two or three questions a month that may come up.

The problem here is that this may be indicative of the fat and waste that is still there despite the downward spiral in results for the past year and a half. I have worked in the past for companies that had multiple locations and not a one had HR managers at each of the locations.

Now HD will have 230 District Teams that will shoulder the HR duties. This is the set up I would be willing to bet 90% of corporate America has (still may be a bit too heavy). It also speaks to additional issues. If HD has gone to this length to communicate with employees at the store level and have someone there for immediate response to questions the fact that employee moral is so low is really shocking.

It means that either these people were not trained properly or that the policies enacted are so poor, efforts to right the ship are going to have to be extraordinary to fix it now that the immediate contact will be gone.

Now, HD has cut corporate HQ staff level in order to concentrate on customer service. But, aren’t most of our customer service complaints due to dealing with unhappy, poorly trained employees? If they can’t fix that issue with HR in the building, one has to question their ability to do it when they are removed…

Disclosure (“none” means no position):None

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Tuesday's Upgrades and Downgrades


Upgrades
Huntsman (HUN)- BB&T Capital Mkts Hold » Buy
Sepracor (SEPR)- AmTech Research Neutral » Buy
NVIDIA (NVDA)- AmTech Research Neutral » Buy
Massey Energy (MEE)- Caris & Company Above Average » Buy
Colnl BancGrp (CNB)- Stifel Nicolaus Sell » Hold
Orthofix (OFIX)- Leerink Swann Mkt Perform » Outperform
Lincoln Electric (LECO)- BB&T Capital Mkts Hold » Buy
Apple (AAPL)- Thomas Weisel Market Weight » Overweight
Westlake Chemical (WLK)- UBS Neutral » Buy
ComScore (SCOR)- Jefferies & Co Hold » Buy
Novellus (NVLS)- Lehman Brothers Underweight » Equal-weight
Temple-Inland (TIN)- Citigroup Hold » Buy
KLA-Tencor (KLAC)- Citigroup Hold » Buy

Downgrades
Power Integrations (POWI)- Needham & Co Strong Buy » Buy
Cirrus Logic (CRUS)- Needham & Co Buy » Hold
Emulex (ELX)- Wachovia Outperform » Mkt Perform
Vignette (VIGN)- Roth Capital Buy » Hold
Aruba Networks (ARUN)- JP Morgan Neutral » Underweight
AnnTaylor (ANN)- Piper Jaffray Buy » Neutral
Applied Materials (AMAT)- Credit Suisse Outperform » Neutral
Ocean Power Tech (OPTT)- Bear Stearns Outperform » Underperform
Columbia Sportswear (COLM)- Citigroup Hold » Sell
Nortel (NT)- Robert W. Baird Outperform » Neutral
Amkor (AMKR)- Lehman Brothers Overweight » Equal-weight
TJX Cos (TJX)- Citigroup Buy » Hold
Hartford Financial (HIG)- UBS Buy » Neutral
Estee Lauder (EL)- UBS Buy » Neutral
MGM Mirage (MGM)- Oppenheimer Outperform » Perform

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Tuesday’s Upgrades and Downgrades


Upgrades
Huntsman (HUN)- BB&T Capital Mkts Hold » Buy
Sepracor (SEPR)- AmTech Research Neutral » Buy
NVIDIA (NVDA)- AmTech Research Neutral » Buy
Massey Energy (MEE)- Caris & Company Above Average » Buy
Colnl BancGrp (CNB)- Stifel Nicolaus Sell » Hold
Orthofix (OFIX)- Leerink Swann Mkt Perform » Outperform
Lincoln Electric (LECO)- BB&T Capital Mkts Hold » Buy
Apple (AAPL)- Thomas Weisel Market Weight » Overweight
Westlake Chemical (WLK)- UBS Neutral » Buy
ComScore (SCOR)- Jefferies & Co Hold » Buy
Novellus (NVLS)- Lehman Brothers Underweight » Equal-weight
Temple-Inland (TIN)- Citigroup Hold » Buy
KLA-Tencor (KLAC)- Citigroup Hold » Buy

Downgrades
Power Integrations (POWI)- Needham & Co Strong Buy » Buy
Cirrus Logic (CRUS)- Needham & Co Buy » Hold
Emulex (ELX)- Wachovia Outperform » Mkt Perform
Vignette (VIGN)- Roth Capital Buy » Hold
Aruba Networks (ARUN)- JP Morgan Neutral » Underweight
AnnTaylor (ANN)- Piper Jaffray Buy » Neutral
Applied Materials (AMAT)- Credit Suisse Outperform » Neutral
Ocean Power Tech (OPTT)- Bear Stearns Outperform » Underperform
Columbia Sportswear (COLM)- Citigroup Hold » Sell
Nortel (NT)- Robert W. Baird Outperform » Neutral
Amkor (AMKR)- Lehman Brothers Overweight » Equal-weight
TJX Cos (TJX)- Citigroup Buy » Hold
Hartford Financial (HIG)- UBS Buy » Neutral
Estee Lauder (EL)- UBS Buy » Neutral
MGM Mirage (MGM)- Oppenheimer Outperform » Perform

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"Fast Money" for Tuesday


Tueday’s Picks
Jeff Macke like Microsoft (MSFT) $29.16

Karen Finerman recommends Goldman Sachs (GS) $178.73

Pete Najarian thinks Chesapeake Energy (CHK) $47.03 is a buy.

Take profits in US Steel (X) $143.72 , says Guy Adami.

Monday’s Results
Jeff Macke likes Microsoft (MSFT) $29.16 Close $29.16 PUSH

Guy Adami prefers Merck (MRK) $40.0 Close $40.78 GAIN

Pete Najarian thinks Energy Conversion Devices (ENER) $33.24 is a buy. Close $32.16 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 4-1
Jeff Macke= 25-17-1
Tim Seymore= 14-8
Guy Adami= 24-22
Pete Najarian= 26-20
Karen Finerman= 19-23-1
Joe Terrenova= 1-1

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%

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Sears' Nifty Purchase

Even I missed this one until alerted by a reader…..

Footstar Inc. (OTC:FTAR) is selling its footwear license to Sears Holdings (SHLD) for $13 million in preparation for winding down its business at the end of the year. Footstar agreed to sell substantially all of its intellectual property to Sears, including the intellectual property related to Sears’ Kmart business.

Footstar operates roughly 1,300 licensed footwear departments at Kmart under a contract set to expire at the end of 2008. They also operate licensed footwear departments in 859 Rite Aid Corporation stores located on the West Coast. Brands under Footstar’s operations include Thom McAn, Cobbie Cuddlers and Texas Steer — which are company owned — and Route 66 and Basic Editions. Kmart-licensed footwear departments account for substantially all of its $630 million in sales and $53 million operating profit. Kmart has begun to hire several employees from Footstar and has promised employment to almost all current management.

So, for $13 million Lampert has saved Sears essentially $53 million annually (the profits Footstar received from Kmart). Not a bad return….

Disclosure (“none” means no position):Long SHLD

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Sears’ Nifty Purchase

Even I missed this one until alerted by a reader…..

Footstar Inc. (OTC:FTAR) is selling its footwear license to Sears Holdings (SHLD) for $13 million in preparation for winding down its business at the end of the year. Footstar agreed to sell substantially all of its intellectual property to Sears, including the intellectual property related to Sears’ Kmart business.

Footstar operates roughly 1,300 licensed footwear departments at Kmart under a contract set to expire at the end of 2008. They also operate licensed footwear departments in 859 Rite Aid Corporation stores located on the West Coast. Brands under Footstar’s operations include Thom McAn, Cobbie Cuddlers and Texas Steer — which are company owned — and Route 66 and Basic Editions. Kmart-licensed footwear departments account for substantially all of its $630 million in sales and $53 million operating profit. Kmart has begun to hire several employees from Footstar and has promised employment to almost all current management.

So, for $13 million Lampert has saved Sears essentially $53 million annually (the profits Footstar received from Kmart). Not a bad return….

Disclosure (“none” means no position):Long SHLD

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Monday's Links

Deal.com, Barrons on Whitman, Ohio AG, Hmmmmm

– Thank you for the mention…..

– Barron’s did a nice piece over the weekend on Marty Whitman.

– What is wrong with these guys?

– Now, where did we read this story before? Maybe, here?

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Monday’s Links

Deal.com, Barrons on Whitman, Ohio AG, Hmmmmm

– Thank you for the mention…..

– Barron’s did a nice piece over the weekend on Marty Whitman.

– What is wrong with these guys?

– Now, where did we read this story before? Maybe, here?

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Borders Gets New Deal with Ackman

This is really good news for shareholders…

Here are the new terms:

* A lower interest rate of 9.8% on the $42.5 million senior secured term loan. The original Pershing Square financing commitment carried a 12.5% interest rate.

* An increased backstop purchase offer (“put”) of $135 million for the international subsidiaries. The original Pershing Square financing commitment included a purchase obligation at a price of $125 million. As previously stated, Borders Group believes its international subsidiaries are worth substantially more than the amended backstop purchase offer price and the company has retained the right to continue its ongoing strategic alternatives process for these businesses.

* A reduction in the number of warrants issued at closing to Pershing Square to 9.55 million warrants to purchase company common stock at $7.00 per share and a reduction in the term of all warrants issued to Pershing Square from 7.5 years to 6.5 years. The original Pershing Square financing commitment included 14.7 million in up-front warrants at $7.00 per share. Under the new agreement, Borders Group is required to issue an additional 5.15 million warrants to Pershing Square if any of the following three conditions occurs: the company exercises the put related to the sale of the international subsidiaries, a definitive agreement relating to a change-of-control of the company is not signed by October 1, 2008, or the company terminates the strategic alternatives process.

“We are pleased to have reached a final financing agreement with Pershing Square that includes more advantageous terms and still provides Borders with the necessary funding to continue implementing our key initiatives,” said Borders Group Chief Executive Officer George Jones. “The process of reviewing alternative financing proposals over the past two weeks was beneficial as it yielded an outcome that is better for our company and our shareholders. We are pleased to have the backing of Pershing Square, our largest shareholder, as we move forward and we appreciate their continued confidence. Borders is now turning its focus to the broader strategic alternatives process.”

Essentially Ackman has told the company “I’ve got your back. Go get any offer you can and I will make you a better one.” This really does illustrate the belief ha has in the prospects for the company. It also shows us how bad he wants to keep control of it. Rather than let a third party come in and stake a claim, he has given the company the latitude to shop for deal that he will willingly beat. Good…

Disclosure (“none” means no position):Long BGP

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"Discretionary" Harley's? Not So Fast

There has been a flurry of posts flying around lately about Harley Davidson (HOG) and their status as a “discretionary” purchase. Now, while the choice to buy a motorcycle may be for some, riding a Harley is not necessarily. There is a huge segment of the Harley population that considers their cars their second mode of transportation.

I am reminded of a story told to me by a friend. His buddy called him and said he was bringing over his new Harley for him to see. As my friend came out to look at it, his buddy’s wife was sitting on the back of the bike. “Isn’t she the most beautiful thing you have ever seen?” he was asked. My friend then looked at me and said, “He was of course talking about the bike”. Ever here a story about that from a Mac user? Or a Ford (F) driver? Me either…

I think the confusion here may be based on the term “discretionary”. When I think of the word I think of mowing my lawn myself vs. having the kid down the street do it. Buying Coke (KO) or buying the generic store bought brand of soda. Going to the movies vs. waiting for it to come out and renting it. Those are truly discretionary purchases.

A Harley Davidson rider will never, ever, make the decision to NOT buy a Harley and instead hop on a Suzuki to “save a few bucks”. That very fact means there is a very large limit to just how discretionary the bikes are.

More “misinformation” is also bantered about that people do not have the money to spend “15k to 30K” for a bike. Now, I have been to a dealership lately and I can tell you there is a whole swath of bikes available for $8,000 to $12,000. That alone makes the potential affordability of it audience wider.

Now, all this is not to say that for some people the bike is discretionary. I as much said so last year when share were trading at all time high’s near $70. Shares have since cratered and sit under $40. Slowing sales and rising credit issues are the main culprits.

What has happened is Harley riders has slowed to rate at which the “trade up” their bikes to bigger, more expensive models. They have not decided to go with another brand. Were Harleys truly discretionary, this would be the trend. Rather than trading in an existing bike for another, riders are sticking with what they have. This is the reason recently the observation was made that the secondary market has remained so strong. The demand for the bikes is still there, people are just being more selective in their purchases.

Let’s not forget that this brand is so powerful people tattoo its logo on their skin. Ever see Google (GOOG) or Apple (AAPL) tattooed on anyone? We know how passionate those folks are about their products, yet it would seem they pale to those who ride HOG’s. You cannot both put a price tag on this and underestimate the power of the brand in people decision making process.

This passion means there is an in-elasticity to the “discretionary” aspect of the bikes. If that is true, and I believe it is, then we may have reached the limit of it and shares have bottomed. That is why I bought earlier in the year…

Another note: As expected, the labor issue has been put to rest.

Disclosure (“none” means no position):Long HOG, None

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"Discretionary" Harley’s? Not So Fast

There has been a flurry of posts flying around lately about Harley Davidson (HOG) and their status as a “discretionary” purchase. Now, while the choice to buy a motorcycle may be for some, riding a Harley is not necessarily. There is a huge segment of the Harley population that considers their cars their second mode of transportation.

I am reminded of a story told to me by a friend. His buddy called him and said he was bringing over his new Harley for him to see. As my friend came out to look at it, his buddy’s wife was sitting on the back of the bike. “Isn’t she the most beautiful thing you have ever seen?” he was asked. My friend then looked at me and said, “He was of course talking about the bike”. Ever here a story about that from a Mac user? Or a Ford (F) driver? Me either…

I think the confusion here may be based on the term “discretionary”. When I think of the word I think of mowing my lawn myself vs. having the kid down the street do it. Buying Coke (KO) or buying the generic store bought brand of soda. Going to the movies vs. waiting for it to come out and renting it. Those are truly discretionary purchases.

A Harley Davidson rider will never, ever, make the decision to NOT buy a Harley and instead hop on a Suzuki to “save a few bucks”. That very fact means there is a very large limit to just how discretionary the bikes are.

More “misinformation” is also bantered about that people do not have the money to spend “15k to 30K” for a bike. Now, I have been to a dealership lately and I can tell you there is a whole swath of bikes available for $8,000 to $12,000. That alone makes the potential affordability of it audience wider.

Now, all this is not to say that for some people the bike is discretionary. I as much said so last year when share were trading at all time high’s near $70. Shares have since cratered and sit under $40. Slowing sales and rising credit issues are the main culprits.

What has happened is Harley riders has slowed to rate at which the “trade up” their bikes to bigger, more expensive models. They have not decided to go with another brand. Were Harleys truly discretionary, this would be the trend. Rather than trading in an existing bike for another, riders are sticking with what they have. This is the reason recently the observation was made that the secondary market has remained so strong. The demand for the bikes is still there, people are just being more selective in their purchases.

Let’s not forget that this brand is so powerful people tattoo its logo on their skin. Ever see Google (GOOG) or Apple (AAPL) tattooed on anyone? We know how passionate those folks are about their products, yet it would seem they pale to those who ride HOG’s. You cannot both put a price tag on this and underestimate the power of the brand in people decision making process.

This passion means there is an in-elasticity to the “discretionary” aspect of the bikes. If that is true, and I believe it is, then we may have reached the limit of it and shares have bottomed. That is why I bought earlier in the year…

Another note: As expected, the labor issue has been put to rest.

Disclosure (“none” means no position):Long HOG, None

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Monday's Upgrades and Downgrades


Upgrades
Daktronics (DAKT)- CL King Neutral » Accumulate
ISTA Pharm (ISTA)- Punk, Ziegel & Co Sell » Mkt Perform
Yamana Gold (AUY)- UBS Neutral » Buy
Rio Tinto PLC (RTP)- Bernstein Mkt Perform » Outperform
BHP Billiton (BHP)- Bernstein Mkt Perform » Outperform
Brookfield Pptys (BPO)- Credit Suisse Underperform » Neutral
SL Green Rlty (SLG)- Credit Suisse Underperform » Neutral
Prudential (PRU)- Lehman Brothers Underweight » Overweight

Downgrades
Baker Hughes (BHI)- CapitalOne southcoast Add » Neutral
Tractor Supply (TSCO)- Wedbush Morgan Buy » Hold
Isilon Systems (ISLN)- McAdams,Wright,Ragen Buy » Hold
Micrel (MCRL)- AmTech Research Buy » Neutral
Isilon Systems (ISLN)- Caris & Company Below Average » Sell
Harmony Gold (HMY)- UBS Neutral » Sell
KC Southern (KSU)- BMO Capital Markets Outperform » Market Perform
Allegheny Tech (ATI)- Cowen & Co Outperform » Neutral
Riverbed Technology (RVBD)- Deutsche Securities Buy » Hold
Meruelo Maddux (MMPI)- RBC Capital Mkts Outperform » Sector Perform
Radware (RDWR)- RBC Capital Mkts Outperform » Sector Perform
Transglobe Energy (TGA)- RBC Capital Mkts Outperform » Sector Perform
Demandtec (DMAN)- William Blair Outperform » Mkt Perform
Gap Inc (GPS)- Credit Suisse Outperform » Neutral
Sirius Satellite (SIRI)- Credit Suisse Outperform » Neutral
KC Southern (KSU)- UBS Buy » Neutral
ASML Holding (ASML)- JP Morgan Overweight » Neutral
Apt Inv & Mgt (AIV)- Credit Suisse Outperform » Neutral
Camden Property (CPT)- Credit Suisse Outperform » Neutral
Georgia Gulf (GGC)- Lehman Brothers Overweight » Equal-weight

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Monday’s Upgrades and Downgrades


Upgrades
Daktronics (DAKT)- CL King Neutral » Accumulate
ISTA Pharm (ISTA)- Punk, Ziegel & Co Sell » Mkt Perform
Yamana Gold (AUY)- UBS Neutral » Buy
Rio Tinto PLC (RTP)- Bernstein Mkt Perform » Outperform
BHP Billiton (BHP)- Bernstein Mkt Perform » Outperform
Brookfield Pptys (BPO)- Credit Suisse Underperform » Neutral
SL Green Rlty (SLG)- Credit Suisse Underperform » Neutral
Prudential (PRU)- Lehman Brothers Underweight » Overweight

Downgrades
Baker Hughes (BHI)- CapitalOne southcoast Add » Neutral
Tractor Supply (TSCO)- Wedbush Morgan Buy » Hold
Isilon Systems (ISLN)- McAdams,Wright,Ragen Buy » Hold
Micrel (MCRL)- AmTech Research Buy » Neutral
Isilon Systems (ISLN)- Caris & Company Below Average » Sell
Harmony Gold (HMY)- UBS Neutral » Sell
KC Southern (KSU)- BMO Capital Markets Outperform » Market Perform
Allegheny Tech (ATI)- Cowen & Co Outperform » Neutral
Riverbed Technology (RVBD)- Deutsche Securities Buy » Hold
Meruelo Maddux (MMPI)- RBC Capital Mkts Outperform » Sector Perform
Radware (RDWR)- RBC Capital Mkts Outperform » Sector Perform
Transglobe Energy (TGA)- RBC Capital Mkts Outperform » Sector Perform
Demandtec (DMAN)- William Blair Outperform » Mkt Perform
Gap Inc (GPS)- Credit Suisse Outperform » Neutral
Sirius Satellite (SIRI)- Credit Suisse Outperform » Neutral
KC Southern (KSU)- UBS Buy » Neutral
ASML Holding (ASML)- JP Morgan Overweight » Neutral
Apt Inv & Mgt (AIV)- Credit Suisse Outperform » Neutral
Camden Property (CPT)- Credit Suisse Outperform » Neutral
Georgia Gulf (GGC)- Lehman Brothers Overweight » Equal-weight

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Citigroup: 10 Years Later

There has been a bunch of commentary about Citigroup (C) now that the 10th anniversary of the merger between Travelers and Citicorp that created the behemoth is upon us.

The commentary has fallen into 2 camps:

1- Better management can fix the “Financial Super-Market” and right the ship.

2- It has been a mistake since day one and need to be broken up.

Let’s ignore the performance of the stock vs. the S&P since we all know that price performance and success or failure are not necessarily a direct correlation. While it is true that after 10 years shareholders at C are 30% behind the average, up until the last 10 months, shareholders we handily ahead of the average for the entire decade.

So, if we have the conversation based simply on that, we would say that the company itself has performed as results have driven the stocks price bit that recent management blunders have caused the collapse.

I think we can agree that is far to simplistic a way to look at it.

One would be hard pressed to argue that Citigroup has not had the burden of being saddled with poor management. Sandy Weill, who created it was a classic gunslinger by even the most conservative comparisons. Chuck Prince, who followed him was left a legal and regulatory mess that he did clean up but so lacked Weill’s personality and charisma, he was never able to rally support for any initiative of his own. It also did not help that he was essentially Weill’s hand-picked successor.

Along the way the executive management at Citi was left in shambles. Names like Jamie Dimon, now the head of JP Morgan (JPM), Wells Fargo (WFC) Head Richard Kovacevich, AIG (AIG) Chairman Robert Willumstad all called Citi home and were squeezed out. The list of second tier names is longer and more extensive.

Weill ran off potential challengers while in charge and his choice of Prince as successor without a real process cause others to “seek other opportunities” in frustration.

Enter Pandit. A successful hedge fund manager and by all accounts a very smart man he inherits a mess the others were most likely offered and all refused. Capital shortfalls cause Pandit to seek billions from the middle east and now leave him with little choice.

While the financial super-market idea will soon be put to sleep permanently (if it has not already) as a bad idea from the start, an argument can made that while an unwieldy beast, it may have worked. A huge operation like that needed deft management to execute. Could they have executed it, Citi may indeed have become the “World’s Bank”. Despite no real leadership in the CEO suite, Citi did grow earnings and its dividend substantially.

Alas it will not happen. Weill was too focused on his position rather than that of the bank and ran off quality people around him. Rather than cultivate leadership in the mold of Goldman Sachs (GS), he decimated the ranks. Prince was so focused on fixing the mess left behind, he did not see what was going on around him.

Pandit now has no other option but to break off chunks of the operation if for no other reason than to restore above adequate liquidity without further shareholder dilution. Long term the bank is still a behemoth in terms of assets and shareholders buying today will be glad they did.

Shareholders who owned shares for the last decade though will be left wondering what could have been had management bee focused on what was really important.

I guess that means that I am not sold on the “too big to manage” camp when it comes to Citigroup, I am in the “poor management” one.

Disclosure (“none” means no position): Long C

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