Thursday, April 8, 2010

Citi and the Value of Consultants

The FT reports that the former co-head of Citi's investment bank, Thomas Maheras, revealed during his testimony to the Financial Crisis Inquiry Commission that the bank had leapt into the exciting field of CDO investing based on a consulting firm's advice. The aforementioned consulting firm is believed to be Oliver Wyman. The fabulous advice that Citi took, likely cost the investment bank millions in consulting fees. And then it cost them around $50 billion in investment losses.

Oliver Wyman. Now why does that name sound familiar to me? Let's travel back into the Mock the Market time machine to June 10, 2008 and read an old post about UBS, shall we? Oh, there it is. UBS also hired Oliver Wyman for advice on what on earth it should do with all of that capital burning a hole in its wallet. UBS also lost $50 billion after taking Oliver Wyman's advice to delve into the lucrative world of CDO trading. And everyone thinks consulting advice is worthless. Clearly somebody found the CDO pitch book and made $100 billion taking the opposite side of Oliver Wyman's advice.

Chuck Prince, the CEO of Citi back when it decided to pursue incinerating all of its capital had been the general counsel and had no prior capital markets experience. The moral of the story? If you need to hire a consultant to tell you how to run your business, you shouldn't be running a bank.

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