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Citigroup’s ex-CEO does an about-face on big banks

Sandy Weill, who built Citigroup, has a new stance.

Louis Lanzano/Associated Press

Sandy Weill, who built Citigroup, has a new stance.

NEW YORK — Sandy Weill is having a change of heart.

Weill, the aggressive dealmaker who built Citigroup on the idea that in banking, bigger is better, said Wednesday that he believes big banks should break up.

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Speaking on CNBC’s ‘‘Squawk Box,’’ Weill, 79, appeared to shock the show’s anchors when he said that consumer banking units should be split from riskier investment banking units.

That would mean dismembering Citigroup as well as other big US banks, such as JPMorgan Chase and Bank of America.

It is an idea that’s traditionally more in line with the banking industry’s harshest critics, not its founding fathers. It is an ironic twist coming from an empire-builder who made Citigroup into a behemoth. And it is directly opposed to the stand of the industry’s current leaders, such as JPMorgan chief executive Jamie Dimon, who have been trying to persuade regulators and lawmakers that big banks do not need to be split.

‘Our world hates bankers.’

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Weill said the radical change is necessary if US banks want to rebuild trust and remain on top of the world’s financial system. Weill also criticized banks for taking on too much debt and not providing enough disclosure about what’s on their balance sheets.

‘‘Our world hates bankers,’’ he said.

Big banks have been villainized in the financial crisis and its aftermath. Critics blame them for risky trading that created a housing bubble and eventually led to global economic upheaval. In some circles, there’s still resentment that the government used taxpayer money to give bailout loans to the biggest banks, including Citigroup, because regulators thought that the financial system would not be able to handle their failure.

But standalone investment banks, Weill said, wouldn’t take deposits, so they wouldn’t be bailed out. Banks that have both investment banking and consumer banking say it’s necessary to keep them together because they balance each other, ensuring stability no matter the economy.

Investment banking, which offers services such as trading stocks and packaging loans into securities, can be spectacularly profitable in good times and spectacularly unprofitable in bad times. Consumer banking, the plain-vanilla business of making loans and accepting deposits, generally offers a steadier, if slower, way to make profits.

Until the late ’90s, the Glass-Steagall Act largely kept consumer banks and investment banks separate. Glass-Steagall was created during the Great Depression. The separation rules were repealed in 1999.

Weill’s professed conversion set off a flurry of reactions. The banking industry’s critics hailed it as proof that the biggest banks should be split. ‘‘Sanford Weill is one of many banking industry experts who have observed that too big to fail is often too big to manage,’’ Senator Sherrod Brown, an Ohio Democrat, said.

Others were unimpressed.

Joshua Brown, a New York investment adviser who writes the blog ‘‘The Reformed Broker,’’ called Weill ‘‘the original architect of Too Big To Fail’’ banking and noted that Weill did not apologize ‘‘for the Citigroup he built or its imitators.’’

‘‘Perhaps this is about burnishing his legacy,’’ he wrote.

Weill said he had not talked to JPMorgan’s Dimon or Vikram Pandit, Citigroup’s current chief executive, about his new views. Dimon was Weill’s protege before getting ousted in a power struggle in the late ’90s. Pandit took over at Citigroup after Weill’s friend, Chuck Prince, lost the job.

Weill retired as Citigroup’s chief executive in 2003 but remained chairman until ’06, building it in both consumer and investment banking.

Asked about his about-face, he said he had been reviewing his thoughts in the past year.

‘‘I think the world changes,’’ he said, ‘‘and the world that we live in is different than the one that we lived in 10 years ago.’’

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