Singing the blues

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: the type of backstop used by Citi; in both cases, toxic holdings are isolated. But a bad bank may have a more positive psychological impact on markets, because it signals a clean break. It also removes a big distraction, allowing managers of the good bank to focus on the healthier businesses. On the other hand, bad banks can be difficult to set up in the thick of a crisis, when it is still unclear which assets should be transferred. And for the institution being helped, it reduces the potential upside, should values recover. Citi will reap gains from some of its walled-off assets as markets stabilise.

But that is for the distant future. For now, Citi’s challenge is to regain its balance. Then it will have to prove that it has become less accident-prone. The bank has been heavily involved in most of the past quarter-century’s nastiest blow-ups, from the sovereign-debt defaults of the 1980s to the dotcom bust. It was even temporarily banned from launching new takeovers in 2005, after a string of regulatory lapses. Built in a hurry by Mr Weill, the group that Mr Pandit inherited lacked a solid culture. Its risk management was not up to scratch. Its investment bank was a patchwork of acquired shops and poached teams. “It was the greatest roll-up in history, but it is yet to sing,” admits a Citi executive.

The genial Mr Pandit is working on creating more harmony and tightening controls. He has also shaken up the way Citi allocates capital and pledged to cut staff numbers by 20% as part of a broader overhaul. He wants Citi to go back to doing “the basics”—retail banking, corporate services, merger advice. That would seem to rule out a much talked about tie-up with Goldman Sachs, dubbed Sachs and the Citi.

But he has admitted he could have moved faster, and more dramatic action may now be needed. Though they have made no explicit demands, regulators want a slimmer, safer Citi. Shareholders want to see proof that the financial-supermarket model works, or else a break-up. For what is the point of a bank that is too big to fail but too unwieldy to succeed?