The former chief executive who took Citi from being the world’s largest bank to the brink of ruin told a US inquiry he was “deeply sorry” on Thursday, but criticized the role played by risk assessment firms.
Former boss Charles Prince told the government panel he was “deeply sorry” for misjudging risky mortgage-based investments that lost the company at least US$30 billion and prompted a massive taxpayer bailout.
“I am deeply sorry that our management — starting with me — was not more prescient and that we did not see what lay before us,” Prince told the Financial Crisis Inquiry Commission, a body tasked with uncovering the causes of the crisis.
PHOTO: BLOOMBERG
The second day of hearings focused on the role the financial sector played in the collapse of the housing market that triggered the worst economic crisis since the Great Depression.
Prince explained that ever-more-daring investments were encouraged by low interest rates and the belief that financial products that bundled up masses of risky mortgages would successfully spread risk.
He admitted he and other executives thought the products “held virtually no risk,” a view which was “strongly reinforced” by other key market players.
As the housing market cratered, the value of mortgage-based assets fell dramatically, forcing the collapse of Lehman Brothers and punching a hole in balance sheets of banks like Citi that also invested heavily.
To stay afloat, Citigroup received around US$45 billion from the US government.
When Prince took office in October 2003 Citi stock was worth around US$47 a share. It has shrunk to just over US$4 a share today.
While the former CEO was repentant, he also lashed out at credit ratings agencies, whose assessments of the riskiness of government debt, firms and products were seen as gospel by many clients.
Prince, 60, admitted the rise of complex assets spurred a “growing reliance on rating agency determinations by investors,” but he hinted the agencies’ rapid devaluation of these holdings fueled the crisis.
“The precipitous nature of the actions by the ratings agencies, together with the widespread holdings of these securities, caused a broad and generalized freezing of securities markets,” he said.
“Investors could no longer be sure what standards and models of risk and safety could be relied upon,” Prince said.
“This general freezing of credit markets then precipitated a severe contraction of trade that led to the general recession that still afflicts us,” he said.
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