Financial Services Industry

Citigroup is hiring rising star Terri Dial to head its consumer business. Dial is leaving a similar post she held at Lloyd’s TSB, the U.K. checking-account provider, where she was credited with improving its retail bank operations.

Citigroup is hungry for new managers who can shake things up since its business has been socked by the turmoil in the mortgage market. Dial will replace Steven Freiberg, who will reportedly be heading up Citigroup’s global credit-card business.

Dial started out at Wells Fargo, where she worked for a quarter century while rising up the ranks from teller to president. Upon her departure, the San Francisco Chronicle said that Dial…

“…was a key spark plug in making Wells into a powerful force in the small-business and consumer banking arenas… Colleagues described Dial as a cyclone — a forceful, charismatic leader who pushed her people hard and inspired the troops with a combination of toughness, good humor and loyalty to subordinates.”

The news comes a day after Citigroup revealed in a memo that it appointed Nick Roe as head of its global equity finance and prime brokerage business. CEO Vikram Pandit has been restructuring Citigroup since taking the helm over from Charles Prince last November.

The image of Citigroup as a premier U.S. bank is at risk of fading, so it remains to be seen if the recent high-level shuffling will help turn the company around.

If, as some economists are saying, the economic downturn is going to hurt consumer spending more than business spending then American Express is making a good defensive move. AmEx is paying $1.1 billion for a General Electric unit that processes charge cards for corporations.

American Express suffered a hit on its recent profits because of the more than$1 billion it set aside for loans that consumers made on their AmEx cards that may not come through. The purchase of GE’s Corporate Payment Services unit also follows last month’s sale of AmEx’s international banking subsidiary. AmEx says both moves are part of its strategy to focus more on the payments sector.

The GE unit was formed 16 years ago to handle GE’s business and entertainment cards as well as purchasing cards for its employees. But it’s grown to serve more than 300 other companies, with GE still its biggest. The unit generated more than $14 billion in global purchase volume last year after seeing its billed business grow at a compounded rate of 18 percent over the last five years.

An AmEx official noted that the corporate clients of the unit it’s buying have good credit, and that accounts are paid in full each month, rather than through a revolving credit account.

I hate to keep harping on the Bear Stearns bailout but hey, everyone else is and it is surely the biggest financial story of the year (or if it isn’t we’re worse off than we think).

But now comes Bill Gross, a managing director at PIMCO and the best known bond investor in America. He’s penned his monthly investment outlook and sent it to PIMCO clients. And true to form he has some interesting takes on the bailout of investment banks. The $30 billion that the Fed put up to back Bear Stearn’s errors is just the beginning.

Let’s see: Twelve months ago the yield on your money market fund was 5%+ but your next statement will probably feature something closer to 2%. Did your money market fund (which in aggregate approaches 3 trillion dollars) experience any capital gains in the process? Absolutely not. So it looks like your (the taxpayer’s) contribution to the bailout of banks, or Florida condominium speculators can at least be quantified: 3% foregone interest per year on whatever you own.

But wait. Gross is just getting started. That vanished interest is being more than matched by the specter of inflationary pressures.

Because of this lender-of-last-resort operation, subsequent inflationary trends may have been fertilized because the debts that caused the crisis are now primarily in another private portfolio and not liquidated (the Fed having absorbed only 10% of the collateral). These debts have to be validated by policy makers through attempts to increase cash flows in the finance-based economy, which is another way of saying they are trying to reflate, which is another way of forecasting an increasing probability of higher inflation.

Regulatory intervention may save the markets from themselves, but it comes with a cost. This time the cost is landing on taxpayers, investors in money markets and consumers. But let’s not dwell on that. Instead, let’s look at the silver lining: Congratulations to all those financial institutions who had the good fortune (and influence) to dodge a bullet!

You know things are bad when even the calvary gets scared. BNP Paribas is backing out of its potential merger with Societe Generale, the troubled French financial giant walloped by an errant trader who racked up $7 billion in losses earlier this year. In an announcement, BNP said,

“Given the persistent rumours, BNP Paribas clarifies that it has ceased to consider a potential tie up with Société Générale. It believes that the conditions, which would have allowed it to realise a shareholder value creating merger, are not met.

“In the current environment, BNP Paribas’ priority is to recognise and play to its strengths: stringent risk management, solid financial structure, commercial efficiency, diversification of revenue sources.”

The statement also emphasized BNP’s “strong capital position” but didn’t say how threatened that would be by mingling its assets with those of Societe Generale. BNP tried and failed to buy Societe Generale back in 1999. How the roles have reversed since then.

Societe Generale doesn’t have any other white knights waiting in the wings. Its predicament isn’t likely to cause a repeat of the Bear Stearns turmoil in Europe, but it does underscore the sense of financial paranoia that originated in the U.S. markets has the potential to move abroad.