Monday, January 26, 2009

In Defense of Citigroup

Private jets are a touchy subject these days and Citigroup is the most recent company in the hot seat:

Citigroup could be in some hot water over reports that the bank, which has received tens of billions of dollars in government bailout money, is buying a brand new $50 million corporate jet for its executives.

The move could infuriate Congressional representatives who eviscerated auto executives in November for flying down to Washington in their corporate jets to ask for billions of dollars in aid under the government’s $700 billion Troubled Asset Relief Program.

Awful, right? Well, think before you bitch:

A Citigroup spokesperson told DealBook that he could not confirm the reports that the bank was set to take control of a new jet, citing “security” concerns. “Executives are encouraged to fly commercial whenever possible to reduce expenses,” Citi said in a statement.

Look at that key phrase that I've bolded and engage your brain for a minute. You don't just order jets like you order books on This order was likely placed long before the financial world went to hell in a hand basket last fall, and Citigroup would have probably taken a charge that would have been a significant percentage of the plane had they not taken the order. At least now it is an asset on the corporate ledger that can be sold down the line, if necessary.

Large corporate expenditures are not like buying a DVD player at Walmart-you don't have a 30 return policy. Additionally, you can't have your cake and eat it, too; you can't complain about the lack of economic activity and also bitch at a company for spending money. In the current economic environment, you've got to tolerate one or the other, and each has its unpalatable consequences.

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