Prince-Rubin: Chuck Prince still doesn’t get what ailed Citigroup. Sure, the bank’s former boss was apologetic about the role he and the megabank played in the economic meltdown when he appeared before the Congressional Financial Crisis Inquiry Commission in Washington on April 8 — as was his co-witness and erstwhile consigliere Robert Rubin. Almost two-and-a-half years since stepping down, Prince is still sticking to his guns: Citi, he insists, was never too big to manage.
That’s just wrong in the face of the evidence. For starters, even before the crisis, the bank was struggling to knit all its disparate business together and to eke out positive operating leverage -- and this was almost a decade after the financial juggernaut was welded together under Prince’s former mentor, Sandy Weill.
Prince has also failed to divine what the scale of Citi’s losses revealed about the state of the bank. For starters, he and Rubin maintain that their risk managers at the time, and the processes they followed, were just fine. Yet, it was that team’s lack of curiosity about the underlying assets in the triple-A CDOs the bank held which subsequently led to some $30 billion of write-downs.
Moreover, neither seems to appreciate that their only being told about the CDO book in September 2007 exposes another fatal flaw. That was already seven months into a welter of bad news on subprime mortgages, including the collapse of two CDO-heavy Bear Stearns hedge funds. Worse, Prince still judges the impact on Citi of the $43 billion of CDOs it held by the size of its balance sheet — $2 trillion at the time — rather than by the fact they equated to almost half the bank’s capital.
And then there’s the simple fact that his successor, Vikram Pandit, gave up on the megabank strategy after months of trying to make it work. Even with that shift, Citi’s future is far from certain: it is still losing money on many of its $550 billion of unwanted assets. But at least Pandit is trying to prepare for the future by making Citi smaller and more manageable — leaving the financial supermarket nostalgia for Prince.
