‘What makes a city influential? Some say it’s the economic opportunities or the technological capabilities or the possibilities of connecting with other cities. We say it all comes down to people. The progress-makers. The ones whose boundless drive, passion and brilliance bring a city to life like no other. They’re why we’ve made it our job to be here. Believing in their ideas. Backing their ambitions. Making them real. In London. Around the world.’
– Citigroup, The Progress 1000: London’s Most Influential People (2018)
‘The Truth is like poetry. And most people fucking hate poetry.’
– The Big Short (2015)
Citigroup Inc. is an American multinational investment bank and financial services corporation with its headquarters in New York City. Citigroup owns Citicorp, the holding company for Citibank, as well as several international subsidiaries. Citigroup is ranked 3rd on the list of largest banks in the United States and, alongside JPMorgan Chase, Bank of America, and Wells Fargo, is one of the Big Four banks. Citigroup is rated a systemically important financial institution and as such is on the list of systemically important banks that are regarded as too big to fail. It is also one of the nine global investment banks in the Bulge Bracket. Citigroup is ranked 32nd on the Fortune 500 list of the largest United States corporations by total revenue for their respective fiscal years. Citigroup has over 200 million customer accounts and does business in more than 160 countries. It has 209,000 employees, although it had 357,000 employees before the financial crisis of 2007-2008, when it was rescued via a massive stimulus package by the U.S. government.
The Subprime Mortgage Crisis
Heavy exposure to troubled mortgages in the form of collateralised debt obligation (CDOs), compounded by poor risk management, led Citigroup into trouble as the subprime mortgage crisis worsened in 2008. The company had used elaborate mathematical risk models that looked at mortgages in particular geographical areas, but never included the possibility of a national housing downturn, or the prospect that millions of mortgage holders would default on their mortgages. Trading head Thomas Maheras was close friends with senior risk officer David Bushnell, which undermined risk oversight. As Treasury Secretary, Robert Rubin was said to be influential in lifting the Glass–Steagall Act that allowed Travelers and Citicorp to merge in 1998. Then on the board of directors of Citigroup, Rubin and Charles Prince were said to be influential in pushing the company towards mortgage-backed security (MBS) and CDOs in the subprime mortgage market.
Starting in June 2006, Senior Vice President Richard M. Bowen III, the chief underwriter of Citigroup’s Consumer Lending Group, began warning the board of directors about the extreme risks being taken on by the mortgage operation that could potentially result in massive losses. The group bought and sold $90 billion of residential mortgages annually. Bowen’s responsibility was essentially to serve as the quality control supervisor ensuring the unit’s creditworthiness. When Bowen first became a whistleblower in 2006, 60 per cent of the mortgages were defective. The amount of bad mortgages began increasing throughout 2007 and eventually exceeded 80 per cent of the volume. Many of the mortgages were not only defective, but were a result of mortgage fraud. Bowen attempted to rouse the board via weekly reports and other communications. On November 3, 2007, Bowen emailed Citigroup Chairman Robert Rubin and the bank’s chief financial officer, head auditor and the chief risk management officer to again expose the risk and potential losses, claiming that the group’s internal controls had broken down and requesting an outside investigation of his business unit.
The subsequent investigation revealed that at the Consumer Lending Group had suffered a breakdown of internal controls since 2005. Regardless of the findings of the investigation, Bowen’s charges were ignored, despite the fact that withholding such information from shareholders violated the Sarbanes–Oxley Act (SOX), which he had pointed out. Citigroup CEO Charles Prince signed a certification that the bank was in compliance with SOX despite Bowen revealing this wasn’t so. Citigroup eventually stripped Bowen of most of his responsibilities and informing him that his physical presence was no longer required at the bank. The Financial Crisis Inquiry Commission asked him to testify about Citigroup’s role in the mortgage crisis, and he did so, appearing as one of the first witnesses before the Commission in April 2010.
As the crisis began to unfold, on 11 April 11, 2007, Citigroup announced that it would eliminate 17,000 jobs, or about 5 percent of its workforce, in a broad restructuring designed to cut costs and bolster its long underperforming stock. Even after securities and brokerage firm Bear Stearns ran into serious trouble in the summer of 2007, Citigroup decided the possibility of trouble with its CDO’s was so tiny (less than 1/100 of 1 per cent) that they excluded them from their risk analysis. With the crisis worsening, on 7 January, 2008, Citigroup announced that it was considering cutting another 5 percent to 10 percent of its 327,000 member-workforce.