Now to Explain the Party Favors by Andrew Sorkin

The New York Times (4/5/2010)
Andrew Sorkin

On Thursday, two of the biggest — and among the most tarnished — names on Wall Street will testify in front of the Financial Crisis Inquiry Commission in Washington: Charles O. Prince III, the former chairman and chief executive of Citigroup, and Robert E. Rubin, a former top adviser and director of the bank. On the watch of these men, Citigroup lost more money than almost any company in history, requiring an extraordinary government bailout.

There are, of course, many important questions for the commissioners to ask these men about how and why the bank filled its balance sheet with so many bad subprime loans, taking on enough risk to nearly topple the system.

But there is one small question, not so obvious, that has been crying out for an answer for years, and it has nothing to do with exoticisms like C.D.O.’s or C.D.S.’s. Instead, this question is about incentives and compensation on Wall Street and a mind-set — a group-think really — that pervaded not just Citigroup but the entire industry.

In 2007, Mr. Prince resigned from Citigroup under pressure, after the bank announced that it had written down $5.9 billion to account for the declining value of its mortgage assets and would most likely write down $8 billion to $11 billion more. (Boy, was that estimate off; those write-downs actually added up to tens of billions.)

As a thank-you present for running the bank into the ground, the board gave Mr. Prince a parting gift valued at $12.5 million. Yes, you read that correctly, $12.5 million. That exit bonus was on top of the $68 million he received in stock and options he had accumulated over his many years at the company; a $1.7 million pension; and an office, car and driver for up to five years. In exchange, Mr. Prince signed an agreement not to compete with Citigroup for five years.

This wasn’t a case of the board paying out an exit bonus to a chief executive with no whiff of a problem, only to find time bombs ticking after he left. Mr. Rubin and Citigroup’s other directors decided to pay the $12.5 million bonus knowing very well that Citigroup’s market value had dropped by $64 billion during Mr. Prince’s tenure.

So the simple question for Mr. Rubin and Mr. Prince is, Why? Why would you knowingly reward such failure? What is it about the culture of Citigroup and Wall Street that encouraged you to approve such a large party favor? Why was there reason to give a bonus at all?




Link to complete Andrew Sorkin article

Grandpa:
The Financial Crisis Inquiry Commission is a bipartisan commission that has been given a critical non-partisan mission — to examine the causes of the financial crisis that has gripped the country and to report our findings to the Congress, the President, and the American people.

Phil Angelidesis Chairman of the Financial Crisis Inquiry Commission and from 1999 to 2007, he served as California's State Treasurer. Dear

Mr. Angelidesis, for the sake of our children and grandchildren, please take the gloves off during this hearing and take these self-absorbed gluttonous "executives" to task! It is imperative that Robert Rubin's era of pillaging ceases!! Maybe, just maybe his Treasury Secretary successors (Summers and Geithner) will get the message.