Rubin’s Career at Citigroup Ends After $20 Billion of Losses

By Josh Fineman

Jan. 10 (Bloomberg) -- Robert Rubin, the former Treasury secretary who advised Citigroup Inc. as it lost $20 billion in the subprime mortgage crisis, resigned his position as senior counselor and won’t stand for re-election to the board.

Rubin’s departure comes as Citigroup and Morgan Stanley are in talks to merge their brokerage units, said a person familiar with the matter. Rubin, 70, intends to “deepen his involvement in outside activities and organizations to which he has been strongly committed,” the New York-based bank said in a statement on Jan. 9.

Rubin, who served at the Treasury’s helm from 1995 to 1999 under President Bill Clinton, was criticized by investors for collecting more than $150 million in pay in a decade while failing to steer Citigroup away from subprime securities. The investments led to four straight quarterly losses and prompted the bank to turn to the government for a rescue package.

“His reputation has very much been damaged by what has happened at Citi,” Bert Ely, chief executive officer of Ely & Co., a bank consulting firm in Alexandria, Virginia, said in a Bloomberg TV interview. “Fair or not, Citi’s problems do reflect negatively on him.”

Citigroup, the biggest bank recipient of U.S. bailout funds, completed an agreement for a $20 billion government investment, on top of an earlier $25 billion injection and a U.S. guarantee on $306 billion in troubled assets.

“My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today,” Rubin said in a letter to Chief Executive Officer Vikram Pandit.

Rubin’s Hiring

Rubin was hired at Citigroup in 1999 by then co-CEOs Sanford “Sandy” Weill and John Reed as chairman of the executive committee, three months after leaving the Treasury. Rubin was to be part of a “newly constituted” three-person office of the chairman, Citigroup wrote in an Oct. 26, 1999, press release announcing his appointment.

At the time, then-Credit Suisse First Boston analyst Mike Mayo, who’s now at Deutsche Bank AG, warned in a report to clients that the advantages of Rubin’s hiring included “an attractive Rolodex for gaining business, strategic and economic insights, regulatory connections and more management depth if needed.”

Disadvantages included “too many chefs in the kitchen” and “less accountability at the top,” Mayo wrote. “We prefer to see one person in control.”

Treasury

Rubin left Goldman, Sachs & Co. -- now Goldman Sachs Group Inc. -- to become a top economic adviser to Clinton in 1993. In 1994, he succeeded Lloyd Bentsen as Treasury secretary, presiding over five years of economic growth.

At Treasury, Rubin was instrumental in the dismantling of the 1933 Glass-Steagall Act, which separated commercial lending from investment banking. The repeal of the law allowed Weill, and later former CEO Charles “Chuck” Prince, to build Citigroup into its current form.

When he retired as secretary, Rubin successfully pushed for Lawrence H. Summers, his deputy, to succeed him. Two years later, in 2001, Rubin championed Summers again -- this time to become president of Harvard University.

“There is still a great deal to do, but I have great confidence that Citi will meet the long-term challenges ahead,” Rubin said in the letter.

Citigroup’s 77 percent decline in New York Stock Exchange trading in 2008 made the stock the worst performer in the 24- company KBW Bank Index for the second year in a row. The shares fell 41 cents, or 5.7 percent, to $6.75 on Jan. 9.

To contact the reporter on this story: Joshua Fineman in New York at jfineman@bloomberg.net.