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Ex-CEO of Citigroup Apologizes for Gutting Glass-Steagall

When these people start apologizing for the harm they have done, you
know a terrific shitstorm is coming.  Well, at least he felt
contrition.  When will the others follow his lead?





Reed Says ‘I’m Sorry’ for Role in Creating Citigroup
By Bob Ivry

Nov. 6 (Bloomberg) -- John S. Reed, who helped engineer the merger
that created Citigroup Inc., apologized for his role in building a
company that has taken $45 billion in direct U.S. aid and said banks
that big should be divided into separate parts.

“I’m sorry,” Reed, 70, said in an interview yesterday. “These are
people I love and care about. You could imagine emotionally it’s not
easy to see what’s happened.”

Citigroup was formed in 1998 when Citicorp, a commercial bank,
combined with Sanford I. Weill’s Travelers Group Inc., which owned the
investment firm Salomon Smith Barney Holdings Inc. The New York-based
company lost $27.7 billion in 2008 and took $118 billion in
writedowns. Now 34 percent-owned by the Treasury Department, Citigroup
sought help in the wake of a credit freeze that claimed three of Wall
Street’s biggest firms and led to the deepest recession in 70 years.

Congress’ overhaul of U.S. financial regulations should include
ordering banks to hold more capital, ensuring executives’ compensation
is aligned with long-term profitability and banning firms that take
deposits from also engaging in equities and fixed-income trading, Reed
said.

“I would compartmentalize the industry for the same reason you
compartmentalize ships,” Reed said in the interview in his office on
Park Avenue in New York. “If you have a leak, the leak doesn’t spread
and sink the whole vessel. So generally speaking you’d have consumer
banking separate from trading bonds and equity.”

Glass-Steagall Repeal

Lawmakers were wrong to repeal the Depression-era Glass- Steagall Act
in 1999, Reed said. At the time, he supported overturn of the law,
which required the separation of institutions that engaged in
traditional customer banking services from those involved in capital
markets.

“We learn from our mistakes,” said Reed, who wrote an Oct. 21 letter
to the editor of the New York Times endorsing a division of banking
activities. “When you’re running a company, you do what you think is
right for the stockholders. Right now I’m looking at this as a
citizen.”

Reed headed Citicorp for 14 years until the merger with Travelers. The
deal created the world’s biggest financial company in a stock swap
valued at about $85 billion. Reed and Weill were co-chairmen and co-
chief executive officers until Reed’s retirement in 2000.

Citigroup spokesman Stephen Cohen declined to comment.

Reed’s Compensation

From 1997 to 1999, Reed received salary and bonuses totaling $23.4
million, according to Citigroup filings. In 2000, he received a
retirement bonus of $5 million, filings show. Citigroup provides him
with an assistant and a New York office, for which he pays taxes, he
said.

Citigroup, the third-largest U.S. bank, shed about $300 billion in
assets, or 13 percent of its total, in the year ended Sept. 30 and is
selling what it calls non-core properties, according to regulatory
filings. The company said yesterday that it will spin off its
Primerica Financial Services subsidiary.

CEO Vikram S. Pandit has eliminated about 100,000 jobs since late
2007, reducing the headcount by 26 percent as of Sept. 30.

Citigroup pioneered the production of collateralized debt obligations,
bundles of loans whose cash flows were sold to investors. When
subprime mortgage borrowers began defaulting on payments in 2007, the
CDOs lost value and became part of Citigroup’s $118 billion in
writedowns and credit losses.

In the last year, the bank received $45 billion from the U.S.
government to bolster its capital and another $300 billion in loss
guarantees. The Treasury Department retained its 34 percent stake
after converting a portion of the $45 billion in rescue funds to
equity.

To contact the reporter on this story: Bob Ivry in New York at
bivry@bloomberg.net.

Last Updated: November 6, 2009 10:12 EST







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