While being evasive and unwilling to admit directly that Citigroup (NYSE:C) was so large it was impossible to manage at the Financial Crisis Inquiry Commission hearings today, former CEO Charles Prince, after denying it was too big, then couldn’t satisfactorily answer why they didn’t see the crisis coming.
When grilled about the large number of collateralized debt obligations (CDO), Prince responded saying they were considered to be “virtually no risk” to the company by regulators or the management team in place.
But it seems Prince doesn’t get that that means they didn’t have a grip on the situation, which goes back to whether Citigroup was too big to manage effectively.
Robert Rubin was also testifying before the committee today, and he seemed to confirm the company was so large it was impossible to keep a grip on it, as the economic and mortgage crisis was so complex no one could have seen it coming.
The problem with that assertion of course is there were some people that had been warning of this for some time, it was just that the bank leaders refused to believe it, and of course everyone has paid the consequences because of that.
What I take away from Prince and Rubin is they’re acting contrite over what happened, but are distancing themselves from being put on the line by refusing to say Citigroup was too unwieldy and large, which would have a detrimental impact on the company today, at least in the minds of those running it, who want to keep it huge.
Of the mortgage portfolio held by Citigroup at that time, 50 percent of it had been kept off the balance sheet, which raised questions from those on the committee who understood what that meant.
The AAA rating the bonds held were part of the deception, as they were supported by loans which for the most part shouldn’t have ever been allowed, and that was what the CDOs were based upon.
What these bankers are saying is they only looked at the bond rating and not the underlying mortgages which allegedly supported that rating.
