Two of the executives involved in Citigroup’s near-collapse during the financial crisis told a government committee Thursday that they were sorry for not foreseeing the conditions that led to billions of dollars of losses and assistance from the government and taxpayers.
Apology for Lack of Foresight
“Let me start by saying I’m sorry,” said Chuck Prince, former Citigroup CEO. “I’m sorry the financial crisis had such a devastating impact on our country. I’m sorry for the millions of people, average Americans, who have lost their homes and I’m sorry that our management team, like so many others, could not see the unprecedented market collapse that lay before us.”
Citigroup nearly collapsed in 2007 under the weight of the subprime mortgage meltdown. The institution received bailouts from the federal government that included a $45 billion boost from taxpayers.
Explanations for Citi’s Struggles
Both Prince and Robert Rubin, former chairman of Citi’s executive committee, spoke at the hearing. They each offered similar opinions on reasons for the financial crisis and Citi’s suffering more than $30 billion in mortgage-related losses. Prince, who resigned as CEO in 2007, cited outside factors such as low interest rates and under-regulation of subprime mortgages while apologizing for Citi’s lack of foresight. Rubin and Prince both said Citi had no reason to avoid holding onto mortgage-based assets which received unrealistically optimistic credit scores but ended up costing the institution about $30 billion.
“We believed that the top level would be immune to the problems,” Prince said. “Sitting here today, that belief looks unwise.”
Rubin put distance between himself and Citi, saying that he was hired under an agreement that he “would have no management of personnel or operations” and that he did not have any say in retaining the mortgage-related assets. Rubin did not discuss either the $100 million he was paid as a senior advisor or a bonus Prince received during Citi’s tailspin.
Policy Suggestions Moving Forward
Prince and Rubin both offered opinions on how to best manage the U.S. financial system. Each stressed the importance of financial reform to avoid banks growing “too large to fail” or “too interconnected to fail.”
“We must find a solution to this problem,” Prince said. “Whether through resolution authority, greater regulation, increased capital requirements or all the other creative and innovative measures that your commission has been discussing.”
The Financial Crisis Inquiry Commission is a bi-partisan group formed in 2009 by President Barack Obama meant to examine the causes of the U.S. financial crisis. Thursday’s testimony was part of a three-day hearing on subprime lending and government-sponsored enterprises. The commission is scheduled to hear from former Fannie Mae executives on Friday, April 9.
Transcripts of Prince’s and Rubin’s prepared statements, along with a video feed of the hearings, can be found here.