Citigroup announced their earnings, or rather the lack thereof, this morning and announced that they will be breaking up into two companies:

NEW YORK (AP)— Citigroup said Friday it is splitting up into two businesses as it reported a fourth-quarter net loss of $8.29 billion — its fifth straight quarterly loss.

In Citigroup’s reorganization, one business, Citicorp, will focus on traditional banking around the world, while the other, Citi Holdings, will hold the company’s riskier assets.

CEO Vikram Pandit’s move will allow Citigroup to sell or spin off the Citi Holdings assets to raise cash. It also reveals the company’s growing focus on back-to-basics lending and deposit-gathering, and dismantles the “financial supermarket” created a decade ago.

Shares rose about 14 percent in pre-market trading.

Breaking up the company will probably allow it to survive but size isn’t the problem. The problem at Citigroup is no different than the problem that existed at Citibank 30 years ago – bad management. Citi has been involved in every major banking and financial scandal for as long as I can remember. The Breaking Views blog at the NYT lists some of the newer ones:

Citigroup has shown an unrivaled ability to step into nearly every mess the financial industry has concocted over the last two decades. The 1998 merger of Sandy Weill’s Travelers Group with the former Citicorp only amplified the combined group’s propensity for getting it wrong.

Start with the current crisis. The group loaded up on illiquid leveraged loans and mortgage assets that have led to net losses of $20 billion and counting, and forced the government to make two capital injections of taxpayer dollars totaling $45 billion. Moreover, that figure is likely to rise as a result of guarantees the government has given on more than $249 billion of wobbly assets.

Now go back a few years. Citi was knee-deep in the tainted research scandals that clobbered Wall Street and resulted in the lifelong ban from the securities industry of its former telecom analyst, Jack Grubman. Citi had its tentacles in the collapses of Enronand WorldCom, and created the financial vehicle called Black Hole that allowed the Italian dairy concern Parmalat to curdle.

There was also an attempt to manipulate the European government bond market through Citi’s self-described “Dr. Evil” trade, which its former chief executive, Charles O. Prince III, rightly classified as “knuckleheaded.” Mr. Prince also got to take the rap, with a deep public bow to Japanese regulators, for Citi’s violations of securities laws there. That occurred around the time the Federal Reserve had stayed his hand on any new bank acquisitions because of perceived inadequate risk management.

Citi even manages to find exposure to scandals they don’t have a direct hand in. Citi didn’t have any direct exposure to Long Term Capital Management in 1998, but they were major lenders to Goldman which had direct exposure. The Breaking Views blog doesn’t go back far enough either. It was during the S&L crisis back in the late 80s, early 90s that Prince Alaweed first came to Citi’s rescue. Obviously, Citi wasn’t then an S&L, but that crisis is misnamed. It was a banking crisis brought on by too much risky lending. Back then it was primarily commercial real estate and Citi wasn’t able to avoid that one either.

Going back still further, we find Citi at the center of the Latin debt crisis of the early 80s. Citi and other banks had loaned large amounts to Latin American countries on the dubious belief that sovereign nations don’t go bankrupt. Apparently, they didn’t have access to a history book. When Mexico defaulted in 1982, Treasury had to rescue them again. Citi (and some other banks to be fair) was allowed to carry the loans on the books at par and later those loans were repackaged into Brady bonds and sold off.

And Citi’s first government bailout goes back quite a bit further – to the crash of 1929. Back then the company was known as National City and it was one of the most aggressive banks on Wall Street. When the crash hit, the government recapitalized them with a $2 million capital infusion.

So what’s the problem at Citigroup? Management is the problem and Citi will not become a good bank by getting rid of the investment side which is arguably the best part of the company. Citi will only become a better bank when the entire management team is replaced with competent people. That’s not to say that there aren’t good people at Citi; I’m sure there are, but something about Citi’s culture infects even good managers who go there. Look at Robert Rubin who was successful at everything he ever did until he landed on Citi’s board.

Citigroup is the poster child for why we shouldn’t be bailing out failing companies. Badly managed companies have to be allowed to fail so bad managements can be purged. That’s how capitalism works and interrupting the process just allows bad companies to survive and cause future problems. Maybe we should have let Citi die in the crib way back in 1929.