Ex-Citigroup Top Execs Sorry, But Deflect Fault in Crisis

Former Citigroup Chief Executive Charles Prince (L) and Robert Rubin, former chairman (Jim Young/Reuters)Charles Prince, the former Citigroup CEO and Robert Rubin, its former chairman, testified today they were mostly unaware that the financial institution was sitting on debt obligations riddled with toxic mortgages as a dramatic housing market collapse loomed in 2007.
Prince and Rubin testified today during a second day of hearings before the Financial Crisis Inquiry Commission, the bipartisan panel that will report to Congress by the end of the year on its findings.
The two men apologized and expressed regrets over not seeing the pending crisis unfold and not take sufficient action to minimize its impact on Citigroup, which would come to represent a “too big to fail” institution and become a recipient of a $45 billion taxpayer bailout package.
But in prepared testimony both men placed more blame on the financial system that fostered the crisis, than on their own actions.
“In retrospect, it turned out the risk assessment, while widely held, was wrong, given the wholly unanticipated and dramatic collapse in residential real estate values across the board, in every community and geographic location nationwide,” Prince said.
The former CEO said senior management was fully focused on “unprecedented issues” by summer and fall of 2007.
“Regrettably, we were not able to prevent the losses that occurred, but it was not a result of management or Board inattention or a lack of proper reporting of information,” Prince said.
The Senate next week resumes debate on broad financial oversight reform, including strict measures that call for the orderly dismantling of an institution that may pose a risk to the economy.
The commission heard testimony yesterday from Richard Bowen, Citi’s former chief underwriter. Bowen said that in 2006 he started warning Rubin and other top executives about mounting “defective pools” of subprime mortgages underwritten by third party originators.
These mortgages were acquired by Citi, which Bowen said abandoned strict credit standards in doing so, to sell them to investors, primarily the government sponsored enterprises  Fannie Mae and Freddie Mac.
The repackaged debt securities backed by these toxic mortgages almost doomed Citigroup and other financial giants, including Fannie and Freddie, and the so-called housing bubbled would erupt into the financial crisis of 2008.
“Almost all of us involved in the financial system, including financial firms, regulators, rating agencies, analysts, and commentators, miss the powerful combination of forces at work and the serious possibility of a massive crisis,” said Rubin, the former Citi chairman and a former Treasury secretary under President Clinton. “We all bear responsibility for not recognizing this, and I deeply regret that.”
Rubin described his role at Citi as engaging clients in the U.S. and abroad, and to meet with foreign officials “for a bank present in 102 countries. He said he also served as a resource to other executives on strategic and managerial matters.
Rubin said he was unaware of substantial risk involved with nearly $30 billion in CDO (collateralized debt obligation) positions. And he said senior executives were confident enough not to undertake a serious review.
“I feel confident that the relevant personnel believed in good faith that more senior level consideration of these particular positions was unnecessary because the positions were AAA rated and appeared to bear (minimal) risk of default,” Rubin said.
Rubin recommended financial reform proposals, including some which are already under consideration by the Senate.
They include stricter derivatives regulations; increased leverage constraints; a resolution authority to avoid the moral hazard of “too big to fail; and a consumer protection entity that watches over both consumers and the financial system

Leave a Reply

Your email address will not be published. Required fields are marked *