Charles Prince and Robert Rubin, who led Citigroup in the run-up to the 2008 banking crisis, voiced regrets on Thursday but accepted no responsibility for mega-bank's massive losses.
The two came under heavy fire before a congressional panel hearing for being blind to financial risks that Citi took on, which ultimately led to its near collapse, prevented only by a $45-billion taxpayer bailout.
His hands visibly shaking as he answered questions, Rubin told congressional investigators he was not a decision-maker at the bank during the worst of its troubles. The former U.S. treasury secretary in the Clinton administration said Citi's risk-assessment ability was strong.
Former CEO Prince came to the defense of Rubin saying as an advisor he was not responsible for Citi's massive losses. Prince offered up multiple apologies for his own ignorance.
"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," Prince said.
But some members of the Financial Crisis Inquiry Commission — charged by Congress with explaining the origins of the worst U.S. financial crisis since the Great Depression — did not buy the half-hearted mea culpas.
"You either were pulling the levers or asleep at the switch," commission Chairman Phil Angelides, addressing Rubin near the end of the hearing.
Citi has been in the crosshairs of the commission for two days now in public hearings occurring just before Congress resumes debate on financial reform and as the White House ramps up its push for a regulatory overhaul.
Eight former and current Citi executives have testified. All have basically said that no one, including them, could have foreseen the problems that nearly destroyed the bank.
Vice Chairman Bill Thomas, pushed the Citi executives for answers, saying, "Behavior has to have consequences."
Thomas challenged Rubin and Prince on the huge pay packages taken by Citi executives, despite their decisions to steer the bank into high-risk businesses that nearly brought it down.
Rubin and Prince again showed remorse, but shouldered no responsibility for Citi's woes, or its eventual bailout.
Bad bets on repackaged debt securities, consumer loans and other assets forced Citi to take three separate government rescue packages totaling $45 billion, more than any other major bank. When the dust settled, taxpayers held about a third of Citigroup's common stock and $27 billion of its debt.
"The overriding lesson of the financial crisis was that the financial system is subject to more severe downside risk than almost anyone had foreseen," Rubin said. "It is imperative that private institutions and the government act on that lesson."
Some members of Congress want to break up banks such as Citi, arguing that they have become not only "too big to fail," as some in the markets see it, but also "too big to manage."
Prince said that that is not the case, saying "I personally do not think that Citi was too big to manage."
Over the past two days, the commission has delved into the breakdown of Wall Street's subprime mortgage securitization business, the complex securities it produced, and the impact those toxic assets had on financial giants, such as Citi.
In explaining their actions, Citi executives have said that they relied chiefly on the judgment of others in assessing the risks being taken in loading the bank's balance sheet with subprime mortgage bonds and other complex debt instruments.
Rubin — a former Citi executive committee chairman and Goldman Sachs executive — expressed deep regrets for not recognizing the approach of the financial crisis.
"Almost all of us ... missed the powerful combination of forces at work and the serious possibility of a massive crisis," said Rubin.
The Obama administration is backing a reform proposal that would limit the future growth of mega-banks by imposing a new market-share cap. Some lawmakers in Congress have called for breaking up large financial conglomerates such as Citi.
But Prince said he believes the financial world needs large, diversified banks. "We are past the days of exclusively small, local banks and financial institutions," he said.
The commission will hold another hearing on Friday to hear from former executives of housing finance giant Fannie Mae and former regulators who supervised it. Fannie Mae was seized by the government in September 2008.
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