Merger of the Unequal?

A little rational thinking would go a long way in explaining the current mess at Citigroup and Merrill Lynch. A touch of humor wouldn’t hurt either, but unfortunately, both are in short supply these days.

Before we try to inject some logic into the situation, here’s an idea: Why not merge these two sinking ships? Or better yet, let Bank of America bid on Merrill, and then combine the merged entity with Citigroup. Merrill has always wanted to be the world’s largest bank, so why not give them that chance? If the “supermarket” approach to banking can actually work, this series of moves will quickly reveal whether the strategy has legs. If not, then it’s time for an alternative—preferably one that doesn’t involve interim CEOs or what Breakingviews.com calls the “need for a plumber.” (By the way, that term hasn’t been used in a high-profile story since the Watergate scandal!)

What we don’t understand is why Merrill and Citigroup acted so recklessly without having a clear successor or even candidates waiting in the wings to take over from O’Neal and Prince. This can’t just be explained by a lack of succession planning, though that’s certainly a valid reason.

Then there’s the involvement of former Treasury Secretary Robert Rubin, now chairman at Citigroup. Rubin will lead the search for a new CEO, but here’s the issue: He fully endorsed Prince’s strategy and doesn’t seem to think anything is wrong with the direction they’re heading. Fine, but if that’s the case, then why push Prince to resign? Was it just to appease a few investors upset over subprime losses? Aren’t boards supposed to stand strong, offering continuity, not capitulation to pressure?

If anyone thinks Rubin is going to roll up his sleeves and actually solve this problem, they should revisit Ken Auletta’s writings more closely. And it gets even worse. According to The Wall Street Journal, the only other person on Citi’s board with banking experience is Dick Parsons, the current head of Time Warner, who once ran a small investment firm earlier in his career. But let’s be real: The “Cable Guy” isn’t exactly the right person to pick talent for a financial rescue. And let’s not forget, he’s the overseer of his own semi-failed strategy. Where’s Carl Icahn when you need him?

Meanwhile, Merrill’s board is probably breathing a sigh of relief, hoping to avoid getting dragged into this mess. But that’s wishful thinking. Their board is even more insular, and convincing a qualified CEO to step in and take over would be a tough sell.

Both institutions have dropped the ball, and since it’s football and CEO turnover season, we can safely bet that this fumble will stay in play for a while.

Maybe the high-flying boys of Wall Street could learn a thing or two from the fast-food giants like McDonald’s. Now that’s a succession story. Even the death of a leader couldn’t stop this brand from marching on and upward.