Citigroup's Bob Rubin Surfaces At Last

Saturday's Weekend Edition of the Wall Street Journal featured a front-page, below-the-crease article examining Bob Rubin's self-defense of his role as Citigroup Chairman.

I've written six posts mentioning Rubin, the latest and most relevant of which are found here and here. In my second linked post, I closed with,

"It's nice, when you've capped an already-impressive career with an essentially part-time job earning you more than $100MM over about a decade. To be so philosophical about presiding over Citi's $40BB in losses and dramatic loss of shareholder value, though, seems to me to border on reckless.

It's as if Rubin grew bored with the mechanics of 'managing' things and people, but relished the opportunity to pretend he was gambling at the tables at Monte Carlo, or maybe Rick's American Cafe in Cassablanca, with Citigroup shareholders' money. You can almost imagine him turning to Claude Rains after being wiped out on one spin of the roulette wheel, and wistfully intoning, as Rains laments Rubin's total loss of other people's money,

'It'll be what it will be, Claude, like everything in life.' "

The Journal article begins with this paragraph,

"Under fire for his role in the near-collapse of Citigroup Inc., Robert Rubin said its problems were due to the buckling financial system, not its own mistakes, and that his role was peripheral to the bank's main operations even though he was one of its highest-paid officials.

"Nobody was prepared for this," Mr. Rubin said in an interview. He cited former Federal Reserve Chairman Alan Greenspan as another example of someone whose reputation has been unfairly damaged by the crisis."

Personally, I would not choose this moment in time to use Alan Greenspan as someone with whom to compare myself and claim I was innocent. It might cause people to fetch a bucket of hot tar and some feathers.

The next few lines of the piece neatly encapsulate, and restate my own prior writing concerning the case against Rubin,

"Mr. Rubin, senior counselor and a director at Citigroup, acknowledged that he was involved in a board decision to ramp up risk-taking in 2004 and 2005, even though he was warning publicly that investors were taking too much risk. He said if executives had executed the plan properly, the bank's losses would have been less.

Its troubles have put the former Treasury secretary in the awkward position of having to justify $115 million in pay since 1999, excluding stock options, while explaining Citigroup's $20 billion in losses over the past year and a government bailout of at least $45 billion."

So there you have it. Rubin counseled the bank of which he was chairman to increase risk levels, while simultaneously speaking in public that market investors were taking too much risk. For his part in Citi's demise, Rubin took home $115MM in less than ten years.

Rubin's reply?

"Mr. Rubin said his pay was justified and that there were higher-paying opportunities available to him. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said. He turned down his bonus last year, telling the board the money could be better spent elsewhere.

Asked if he had any regrets, Mr. Rubin said: "I guess that I don't think of it quite that way," adding that "if you look back from now, there's an enormous amount that needs to be learned."

Mr. Rubin's effort to salvage his reputation comes just after Chief Executive Vikram Pandit appeared on PBS's Charlie Rose show. Mr. Pandit, too, blamed the overall financial crisis, not Citigroup, for the problems that led the government to decide to inject money into the bank for a second time this fall.

"This was something that was bigger than Citi," Mr. Pandit said. "It was about confidence in the financial system. It was about stability of the financial system." "

So Rubin looks at everything in monetary terms. No matter he was paid an outrageous amount for a non-executive chairman of one of the nation's then-largest banks. He claims it was okay, because he was worth it, in that he could have easily earned more each year elsewhere.

Bob, can you spell "mercenary." It's like he's saying,

'Hey, Citigroup shareholders, I'm sorry that I helped ruin your bank. But, you know, you were/are lucky to have me as your chairman. Someone else would have gladly paid me more in each of the past nine years to work for them. You should feel fortunate that I helped blow a $20B+ hole in Citi's balance sheet. And chose an inexperienced new CEO, too.'

Pandit, now taking his cue from the guy who handed him the plum job in banking, now also claims he had nothing to do with anything bad at Citi. It was all 'bigger than Citi.'

In attempting to deflect criticism over his role in shaping risk management at Citi, the Journal article reports,

"Mr. Rubin said it is a company's risk-management executives who are responsible for avoiding problems like the ones Citigroup faces. "The board can't run the risk book of a company," he said. "The board as a whole is not going to have a granular knowledge" of operations.

Still, Mr. Rubin was deeply involved in a decision in late 2004 and early 2005 to take on more risk to boost flagging profit growth, according to people familiar with the discussions. They say he would comment that Citigroup's competitors were taking more risks, leading to higher profits. Colleagues deferred to him, as the only board member with experience as a trader or risk manager. "I knew what a CDO was," Mr. Rubin said, referring to collateralized debt obligations, instruments tied to mortgages and other debt that led to many of Citigroup's losses.

Mr. Rubin said the decision to increase risk followed a presentation to the board by a consultant who said the bank had committed less of the capital on its balance sheet, on a risk-adjusted basis, than competitors. "It gave room to do more, assuming you're doing intelligent risk-reward decisions," Mr. Rubin said. He said success would have been based on having "the right people, the right oversight, the right technology."

The decision has been blamed in part for Citigroup's problems, including the growth of its CDO holdings amid signs the mortgage market was unraveling. Mr. Rubin doubts that's true. "It was not an inflection point," he said, but "I just don't know what would have happened" if the decision had been different.

At the time, Mr. Rubin was saying in speeches that most assets were overvalued. He would quote a noted investor he knew as saying that "the only undervalued asset class in the world is risk."

But it wouldn't have been right for the board to act on his concerns, Mr. Rubin said in the interview: "I wouldn't run a financial institution based on someone's view about what markets would do." He noted that the stock market kept rising for more than three years after Mr. Greenspan, in late 1996, wondered aloud about possible "irrational exuberance." "

I'll bet these remarks are a big surprise to Citigroup shareholders. After all, for just what was Rubin being paid more than $10MM per year? If Rubin's sense of global risk in asset prices wasn't worth being followed by Citi, why have him on the board to begin with? Perhaps more importantly, if Rubin is and was so humble regarding his feelings about risk, for what did he think he was being paid over $10MM per year?

It's simply amazing that, every time Rubin's detractors get him cornered on a topic for which Rubin clearly failed his company and shareholders, he turns zen and utters some unfathomable line about not knowing what else might have been, were Citigroup to have acted on his hunches, rather than Rubin letting management soldier on with no comments from him.

The Journal article closes with this passage,

"With Citigroup shares at $8.29, the stock is down 86% from its all-time high about two years ago and 70% since Mr. Rubin came aboard. The recent stock collapse "was a systemic problem of which Citi was a piece," said Mr. Rubin, who added that one cause was short sellers ganging up on the stock, selling borrowed shares in the hope of driving the share price down.

Asked about what he feels he's accomplished, he responded: "It's a funny way to think about it. I think I've been a very constructive part of the Citigroup environment. That has become particularly manifest since August '07. I have been very involved." "

The last quote of Rubin's is just hilarious, isn't it? This guy almost single-handedly led his bank into overly-risky positions in the riskiest asset going, CDOs, and still has the chutzpah to claim he has been a "very constructive part" of the firm's management, even as he contributed to its current ruination.

Further, he has been "very involved" in Citigroup's near-death experience of the past few years. If that's not a self-admitted indictment of failure and culpability, what would be?