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November 23, 2008
Citigroup Saw No Red Flags Even as It Made Bolder Bets
“Our job is to set a tone at the top to incent people to do the right thing and to set up safety nets to catch people who
make mistakes or do the wrong thing and correct those as quickly as possible. And it is working. It is working.”
Charles O. Prince III
’s chief executive, in 2006
In September 2007, with Wall Street confronting a crisis caused by too many souring mortgages, Citigroup executives
gathered in a wood-paneled library to assess their own well-being.
There, Citigroup’s chief executive, Charles O. Prince III, learned for the first time that the bank owned about $43
billion in mortgage-related assets. He asked Thomas G. Maheras, who oversaw trading at the bank, whether everything
Mr. Maheras told his boss that no big losses were looming, according to people briefed on the meeting who would
speak only on the condition that they not be named.
For months, Mr. Maheras’s reassurances to others at Citigroup had quieted internal concerns about the bank’s
vulnerabilities. But this time, a risk-management team was dispatched to more rigorously examine Citigroup’s huge
mortgage-related holdings. They were too late, however: within several weeks, Citigroup would announce billions of
dollars in losses.
Normally, a big bank would never allow the word of just one executive to carry so much weight. Instead, it would have
its risk managers aggressively look over any shoulder and guard against trading or lending excesses.
But many Citigroup insiders say the bank’s risk managers never investigated deeply enough. Because of longstanding
ties that clouded their judgment, the very people charged with overseeing deal makers eager to increase short-term
earnings — and executives’ multimillion-dollar bonuses — failed to rein them in, these insiders say.
Today, Citigroup, once the nation’s largest and mightiest financial institution, has been brought to its knees by more
than $65 billion in losses, write-downs for troubled assets and charges to account for future losses. More than half of
that amount stems from mortgage-related securities created by Mr. Maheras’s team — the same products Mr. Prince
was briefed on during that 2007 meeting.
Citigroup’s stock has plummeted to its lowest price in more than a decade, closing Friday at $3.77. At that price the
company is worth just $20.5 billion, down from $244 billion two years ago. Waves of layoffs have accompanied that
slide, with about 75,000 jobs already gone or set to disappear from a work force that numbered about 375,000 a year