Former executives of Citigroup Inc. could be in for some surprises when they appear before a panel investigating the roots of the financial crisis.
Commissioners and staffers for the Financial Crisis Inquiry Commission are readying pointed questions for eight former and current Citigroup executives due to testify at hearings that begin Wednesday. Some questions are based on a review of about 2 million pages of documents the commission has obtained, including 1 million pages from Citigroup.
That means witnesses including the bank's former CEO Chuck Prince and former chairman Robert Rubin may be confronted with their own words, as preserved in e-mails and memos provided to the commission.
The three days of hearings will feature testimony focused on high-risk mortgage lending and the way trillions of dollars in risky mortgage debt was spread through the financial system. The hearing is designed to provide a firsthand accounting of decisions that inflated a mortgage bubble and triggered the financial crisis.
The panel is using Citigroup as a case study because the bank was heavily involved in every stage of that process. The megabank was a major subprime lender through its subsidiary CitiFinancial. Other divisions of Citigroup pooled those loans and loans purchased from other mortgage companies and sold the income streams to investors.
As borrowers defaulted, Citigroup took losses on mortgage-related investments it held on and off its books. Mortgage troubles at Citi, defunct investment bank Bear Stearns and elsewhere exposed cracks in the financial system. In late 2007 and throughout 2008, those fissures grew into a full-fledged credit crisis that crippled the global economy.
The FCIC aims to dissect the bank's structure and show how its functions interacted. Wednesday's witness list includes current and former executives from CitiMortgage, parent company Citigroup Inc., and the division of Citi Markets & Banking that created the most notorious mortgage-backed investments.
Rubin and Prince are due to appear Thursday.
Wednesday's first witness will be former Federal Reserve chairman Alan Greenspan. Critics say the Fed's policy under Greenspan of keeping interest rates low encouraged lending to borrowers who had little or no chance of repaying.
As in recent interviews, Greenspan is expected to acknowledge some failings: The Fed failed to recognize the danger of the housing bubble, question the rapid growth of banks like Citigroup or exercise its authority to police risky consumer products like the subprime mortgages at the heart of the crisis.
The panel also will hear this week from a former risk officer with failed subprime lender New Century Financial Corp., a current and a former Comptroller of the Currency and former executives and regulators from government-backed mortgage giant Fannie Mae.
Fannie Mae's close ties to some leading Democrats and its so-far $75.2 billion bailout have made it a political lightning rod.
Congress created the FCIC last year to examine the causes of that crisis. It is structured like the 9/11 panel that examined intelligence failures preceding the terrorist attacks of Sept. 11, 2001.
Like that panel, the commission has authority to issue subpoenas to compel witnesses to testify or force companies to turn over documents. The commission is charged with examining 22 topics — from executive compensation to tax policy — in a report it must issue Dec. 15.
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