Citigroup chiefs 'sorry' for losses on mortgage securities

CHUCK PRINCE and Robert Rubin yesterday apologised for Citigroup’s severe losses on mortgage-related securities but insisted that there was nothing wrong with the company’s risk management ahead of the financial crisis.

“I can only say that I am deeply sorry that our management – starting with me – was not more prescient and that we did not foresee what lay before us,” Mr Prince told a congressionally mandated commission on the financial crisis in Washington.

Mr Prince was chief executive at Citi for most of 2007 as the mortgage meltdown, which ultimately led to a $45 billion government bailout of the bank, began.

Mr Rubin, a former Treasury secretary who held a senior role at Citi until last year, added: “Almost all of us involved in the financial system . . . missed the powerful combination of forces at work and the serious possibility of a financial crisis.”

However, Mr Rubin pointed out that he did not directly manage personnel or operations at Citi, but rather advised senior management and met clients.

Both executives said that Citi’s risk management was solid and claimed that there was a widespread belief within the bank that their holdings of mortgage-related securities were safe investments.

But the congressional panel did not appear convinced. “The two of you did not seem to have a grip on what was happening,” said Phil Angelides, commission chairman. “You were either pulling the levers or asleep at the switch.”

Bill Thomas, vice-chairman, added: “Apparently you can get to the top without ever having experienced all these things that the people below you do,” he said. “What do you get paid for if you don’t have some understanding, intuition, knowledge?”

On pay, Mr Prince responded that the “great majority” of his net worth had disappeared.

Mr Thomas criticised Mr Prince for saying in July 2007: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance.”

Mr Prince said that the remark referred to leveraged lending, not the mortgage business, and that he had asked regulators to take action to curb risky lending. – (Copyright The Financial Times Limited 2010)