Citigroup: The shame of Robert Rubin

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By:
Clive Horwood
Published on:

Robert Rubin has announced his decision to leave Citigroup. A year ago Euromoney was the first publication to question his role and worth at the bank. Our views are equally valid today.

Editor's letter: The shame of Robert Rubin
It must have been the shortest tenure ever in the most senior job in global banking. 
January 2008

Robert E Rubin became chairman of Citigroup on November 4 2007 in the wake of the ousting of Chuck Prince following the revelation of another $11 billion hit to the value of the bank’s credit assets. After just five weeks in the job, on December 11 2007, Rubin was succeeded by Sir Win Bischoff as chairman, with Vikram Pandit taking over as chief executive.

Perhaps the oddest aspect of the news announcement – aside from the lack of relevant experience of Pandit and Bischoff in taking on the top two private sector jobs in the financial world – was how both men deferred to Rubin. If there was a tricky question about board composition or dividend policy the two new appointees, after a brief flounder, let Rubin step in.

Such is the natural authority of a former secretary of the US Treasury who was, before that, co-CEO of Goldman Sachs, the world’s pre-eminent investment bank.

Citi shareholders must wish that such natural authority, and all Rubin’s insights into the greed, fear and complacency that drive financial markets, plus his wide experience of the workings of government and large private-sector banks, can now be brought to bear to fix Citi. Its troubles are many and evident: it is teetering under a growing load of bad assets, its capital eroded by losses already incurred and stretched by a balance sheet swollen by acquisitions and off-balance-sheet assets now brought back on the books. Its share price has collapsed; its leadership ranks are in turmoil.

There are near-term challenges – managing the deteriorating value of assets, husbanding capital. There are medium-term challenges – enhancing productivity and managing costs. And there are more profound questions: should Citi continue in its present form or be broken up?

This is the moment, it would seem, for Rubin to step forward and lead. He is of an age and has the capabilities to manage an overhaul of the entire group and, if that is required, to break it up into smaller units, and then hand these on to the next generation of leaders. Instead of embracing that challenge, Rubin is scurrying back into the shadows. That’s not good enough. If he doesn’t want to do the job that is evidently required, what is the point of his continued employment?

For years, shareholders and employees have wondered what exactly Robert Rubin did as chairman of the executive committee of the board of directors of Citigroup to justify his annual compensation of, on average, $16.5 million plus unlimited personal and business use of the corporate jet.

Rubin himself has acknowledged the extraordinary freedom that came with the job he took in 1999 after standing down as US Treasury secretary. It put him at the centre of what was, following the repeal of the Glass-Steagall Act, the biggest financial institution in the world. But it did not require him to take any operational responsibility. He didn’t chair any of the important committees of the board of directors: he didn’t even sit on them.

In the early days, he intermediated between co-CEOs John Reed and Sandy Weill. Their relationship broke down. Later, he offered strategic advice to Weill and his successor, Chuck Prince, whom Rubin came to champion even as criticism of Citi’s underperformance grew.

No doubt Rubin faithfully mined his contacts and schmoozed busily on Citi’s behalf. But it’s hard to see what he has achieved of any benefit to the bank in more than seven years there. If he ever harboured doubts about Citi’s strategy and operations, if he feared its participation in the worst excesses of the sub-prime market and its embrace of the so-called vehicular finance model of modern banking would one day require it to pay a hefty price, it appears he did not convey these concerns. Prince and the executive management built the problems Citigroup must now manage its way out from under, with Rubin as chief consigliere.

He was always seen as the stop-gap chairman, in waiting for the emergency that might require Prince’s departure. That moment has arrived and Rubin has made it clear he does not want the responsibility. Fine, then, good-bye.

When he returned to Citigroup five and a half years after leaving Goldman, Rubin says he was struck by the rapid changes in financial markets during his time in Washington and the differences between running Goldman Sachs, which had 7,000 employees when he left and Citigroup, which had 180,000 when he arrived.

Today Citi has more than 330,000 employees and Rubin tells us that, after leading a thorough and diligent recruitment search, it has chosen to hand over to a chairman, Win Bischoff, who came to Citigroup in 2000 when it acquired the investment banking arm of Schroders PLC of which Bischoff was chairman. Schroders then had 6,000 employees.