Former Citi Execs Grilled on Capitol Hill

Chuck Prince and Robert Rubin (above), two former senior executives at Citigroup, were conciliatory about the role the company played in the financial crisis during appearances on Capitol Hill Thursday.
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NEW YORK (TheStreet) -- Two former senior executives at Citigroup (C) - Get Report were conciliatory about the role the company played in the financial crisis during appearances on Capitol Hill Thursday.

Robert Rubin, ex-Citigroup Executive Chairman and former Treasury Secretary

Citigroup ex-CEO and Chairman Chuck Prince, and ex-Treasury Secretary Robert Rubin, a former senior advisor and Executive Chairman at the company, appeared before the Financial Crisis Inquiry Commission, or FCIC, as part of the panel's latest public hearing "Subprime Lending and Securitization and Government-Sponsored Enterprises (GSEs)."

"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, according to prepared remarks.

Rubin was a bit more circumspect with regard to accepting blame in his comments, choosing instead to focus on his view of the crisis as being the product of "an extraordinary combination of factors" rather than the result of any single cause.

"Almost all of us involved in the financial system, including financial firms, regulators, ratings agencies, analysts, and commentators, missed the powerful combination of forces at work and the serious possibility of a massive crisis," Rubin said. "We all bear responsibility for not recognizing this, and I deeply regret this."

The FCIC, which was formed to conduct a post-mortem on the meltdown, is holding three days worth of sessions, questioning many former Citigroup executives, as well as other mortgage industry players and regulators, including former Fed Chairman Alan Greenspan, who appeared on Wednesday.

Prince resigned from Citigroup in November 2007, after 30 years of working for the financial conglomerate. The company ended up taking some $30 billion in writedowns over the course of six quarters as a result of devalued collateralized debt obligations, specifically super senior tranches, according to Prince's testimony. The company eventually accepted a total of $45 billion in federal bailout funds and the Treasury still owns a 27% stake.

Rubin said in his remarks that he did not recall "knowing before September 2007 that these super senior tranches had been retained."

Prince also addressed the concept of "too big to fail" and its corollary "too big to manage," which came up in early 2009 amid speculation that Citigroup could be nationalized as a result of its follies.

"I personally do not think Citi was 'too big to manage,'" Prince said. While the company was "a challenge to manage ... we made enormous strides during my tenure to improve the way in which various parts of Citi interacted with each other."

"I do not think that the broad, multifaceted and diversified nature of Citi's business materially contributed to our losses or to the financial crisis more generally - indeed smaller, more narrowly focused firms suffered in similar ways," Prince added.

On the other hand, Prince acknowledged that the notion of "too big to fail" is a more difficult issue.

"My own view is that we are past the days of exclusively small, local-based banks and financial institutions," he said. "While these local institutions certainly have a place in the financial landscape, the financial world we live in is increasingly complex, interconnected and global, and I think this demands equally sophisticated, global and diversified financial institutions."

Richard Bowen, a former senior vice president with CitiMortgage, and Susan Millls, managing director of mortgage finance at Citi Markets and Banking, appeared Wednesday on a four-person slate discussing the origination and subordination of subprime loans.

During his testimony, Bowen told the FCIC panel that he had warned management and Rubin of the company's mortgage risk beginning in 2006, according to the

Associated Press

.

Bowen apparently discovered that in the middle of 2006 more than 60% of the mortgages being bought and sold by the subprime-focused unit were defective, according to the

AP

.

Several other industry executives are set to testify on Friday in front of the Commission including

Fannie Mae's

(FNM)

former CEO Daniel Mudd along with two ex-directors of the Office of the Federal Housing Enterprise Oversight.

Citigroup shares were holding up pretty well in late morning action. The stock was down a penny to $4.35 at last check, and Wednesday's finish at $4.36 was its high-water mark in 2010.

Things have brightened up for the company of late with its most recent success being a

strong IPO

for its

Primerica

(PRI) - Get Report

unit last week. The shares are now up more than $1 since the beginning of the year, a rise of almost 30%, with the majority of that move coming in March as it began to show some palpable progress in its turnaround efforts, and the Treasury disclosed it was preparing to exit its massive stake.

Citigroup is scheduled to report its first-quarter results on April 19, and hold its annual shareholder meeting the next day. The average estimate of analysts polled by

Thomson Reuters

is for a slight loss, breaking even on per share basis, with revenue of $20.8 billion.

--Written by Laurie Kulikowski in New York.