Charles Prince and Robert Rubin, who led Citigroup
The two came under heavy fire in a congressional panel hearing for being blind to Citi taking on huge financial risks under their watch, leading ultimately to the bank's near collapse, prevented only by a $45-billion taxpayer bailout.
His hands visibly shaking as he answered questions, Rubin, formerly U.S. Treasury secretary during the Clinton administration, told panel members that he was not a key decision-maker at Citi during the worst of its troubles.
Former CEO Prince came to the defense of Rubin, saying that as an advisor he was not responsible for Citi's 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.
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 two executives' half-hearted mea culpas.
You either were pulling the levers or asleep at the switch, commission Chairman Phil Angelides said to Rubin.
Citi has been in the crosshairs of the commission for two days now in public hearings occurring just before Congress resumes debate on a raft of financial reform proposals, 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.
THOMAS PUSHES FOR ANSWERS
Vice Chairman Bill Thomas pushed the Citi executives for some explanation of how they personally square the bank's financial calamities with their own lavish compensation packages, saying, Behavior has to have consequences.
Prince left the bank in 2007 with almost $40 million in bonuses, shares and options. Citigroup paid Rubin more than $120 million for his work at the bank over several years.
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.
Rubin tried to clear his name on an old score from the late 1990s, defending his opposition to bringing over-the-counter derivatives under stricter regulatory control.
Back then, Rubin joined with former Federal Reserve Chairman Alan Greenspan in resisting attempts by former Commodity Futures Trading Commission chair Brooksley Born to bring transparency to the unpoliced OTC derivatives market.
On Thursday, Rubin told the commission -- which includes Born -- he was never against more regulation, he simply feared the CFTC's approach would bring dangerous legal uncertainty.
Financial reform is imperative and should include ... derivatives regulation, said Rubin, a former Citi executive committee chairman and a former Goldman Sachs executive.
BANK BREAK-UP EYED IN CONGRESS
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 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 expressed deep regret for not recognizing the approach of the crisis. Almost all of us ... missed the powerful combination of forces at work and the serious possibility of a massive crisis, he said.
The Obama administration is backing a reform proposal that would limit the growth of mega-banks with a market-share cap.
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.
PRINCE COMMENTS ON STILL DANCING QUIP
Prince's infamous comment that his bank was still dancing even as the subprime crisis worsened came back to haunt him at the commission hearing where he was asked about it.
His explanation seemed to boil down to this: it was a race to keep up with competitors who kept loosening lending standards and Citi couldn't afford to drop out.
In July 2007, the Financial Times quoted Prince as saying, As long as the music is playing, you've got to get up and dance ... We're still dancing. The quip became emblematic of bankers' failure to grasp the gravity of the crisis.
Prince said the quote related to the leveraged lending business. It had nothing to do with the mortgage business. ... It had nothing to do with the issues that we've been talking about here, he said.
A few months after the Financial Times interview, Prince resigned.
The commission will hold another hearing on Friday to take testimony from former executives of housing finance giant Fannie Mae
(Additional reporting by Karey Wutkowski and Kim Dixon, with Elinor Comlay, Dan Wilchins and Jonathan Stempel in New York, Editing by Chizu Nomiyama)