Focusing On What Counts

It always comes as a surprise when business leaders decide a course of action that is not in a straight line.  Why did they choose that direction?  In due time, it is all revealed.  One is left then with, “oh I see, well of course”.

In the late 1990’s’s, Sandy Weill lead a process to merge The Travelers Group with Citicorp.  The rationale was to build a “one stop” shop for everything from savings to life insurance, and everything in between.  Bigger will be better was Weill promise.

If you remember those heady days, there had been bank merger after bank merger.  All the local household names have been folded into a few big name banks.  And no sooner had that happened when a new crop of small local banks began to pop up on each corner.  So tell me again why Citibank was going to be different?

It turns out it doesn’t matter what I think.  The merger was really about the resulting stock price and its potential appreciation.  It had little to do with building a better mouse trap (since anyone could copy Travelers and Citi).  It had everything to do with feeding the market’s hunger for stocks that might appreciate.

In the same time period, the “dot com” phenomena took place.  Internet company after company published a prospectus on how they were going to grow revenue.  The picture they drew was carefully crafted to entice others to seek their new stock offering (IPO).

The market does crazy things sometimes, and this was one.

The numbers cited were clearly a real stretch and were based upon practically no track record at all.  What were we missing?

The stocks had a potential for stock appreciation.  Buy now, sell later (at a higher price).

Nobody cared about the underlying company.  It was simply a vehicle for generating stock market profits.

Fast forward to today.  Facebook recently went public.  FB said it thought it was worth about $100 billion.  On opening day, FB sold its stock and like magic, it was worth about $100 billion.  Since then, the stock price has plummeted but nothing has changed at FB nor is there any new information.  FB says “be patient, long term the stock price will rise.”

Who knows.

There is no doubt that FB has currently a winning idea as a social media company.  It is simply hard to see (today) what is so unique.  Why can’t anyone offer a page where people can leave messages and see what others are saying?  If there is an answer, it must be in something like momentum.

The thought is that FB came to the market with a better mouse trap.  It muscled out My Space and lots of chat rooms.  Users found that more users meant more of their contacts are within reach.  Then along comes Twitter and we find there is room for another large social media outlet.  Who else might arrive?

Last week Sandy Weill said in an interview he thought it would be wise to break up large banks into “banks” and “everything else”  Full circle?  Not really.  Weill was really speaking to the share price of big banks.  Prospects for Big Bank share appreciation just aren’t there.

FB like CitiBank will make future moves not for what they can do for their customers but what they can do for their investors.  Going public is not necessarily a good thing.

I wonder what job creators think?

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