Rubin's Teflon Finally Wears Off

by: Felix Salmon November 30, 2008 | about stocks: C    
Felix Salmon

Felix Salmon

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In one of the most ill-advised pieces of PR I can remember, Bob Rubin has given an on-the-record interview to the WSJ, in which he takes no blame or responsibility for anything which has gone wrong at Citigroup (C). The reaction in the blogosphere has been, predictably, swift and brutal, helped along by the fact that Rubin's famous charm clearly hasn't worked on his interviewers, Ken Brown and David Enrich. Here's their lede:

Under fire for his role in the near-collapse of Citigroup Inc., Robert Rubin said its problems were due to the buckling financial system, not its own mistakes, and that his role was peripheral to the bank's main operations even though he was one of its highest-paid officials.

It just gets worse from there: by refusing to admit to any mistakes at all, Rubin has garnered himself zero sympathy. Rubin has been surprisingly bulletproof until now: while he's had many critics, his reputation has largely remained intact. But with this interview, it's disappeared at a stroke: no one can read it and think of him as anything other than a pompous and out-of-touch plutocrat, puffed up with much more self-regard than common sense.

For instance, he's quick to the not-my-bailiwick defense:

Mr. Rubin said it is a company's risk-management executives who are responsible for avoiding problems like the ones Citigroup faces. "The board can't run the risk book of a company," he said. "The board as a whole is not going to have a granular knowledge" of operations.

But board members don't get paid $115 million. If he wasn't playing a central role when it came to Citi's risk book, what was he doing for the money? It's not clear, but his comments don't help much:

Mr. Rubin said his pay was justified and that there were higher-paying opportunities available to him. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said.

Justified? What does that possibly mean? And as for making more money elsewhere, I suspect that many Citigroup shareholders wish that he'd done precisely that. But not only was Rubin incredibly well-paid, he also had to all intents and purposes tenure at Citigroup: as a member of the board, he was an employer of the CEO rather than an employee, so there was really no one who could fire him.

The most astonishing instance of Rubin failing to justify his salary, however, comes later:

Mr. Rubin was deeply involved in a decision in late 2004 and early 2005 to take on more risk to boost flagging profit growth, according to people familiar with the discussions. They say he would comment that Citigroup's competitors were taking more risks, leading to higher profits. Colleagues deferred to him, as the only board member with experience as a trader or risk manager...
At the time, Mr. Rubin was saying in speeches that most assets were overvalued. He would quote a noted investor he knew as saying that "the only undervalued asset class in the world is risk."
But it wouldn't have been right for the board to act on his concerns, Mr. Rubin said in the interview: "I wouldn't run a financial institution based on someone's view about what markets would do."

The cognitive disconnect here is simply staggering. Rubin's going around saying that institutions are taking on too much risk, but he's also telling the Citi board that it should take on even more risk. He had no problem with the board following his lead when he said he wanted Citi to take extra risks, but he says that he would have had a problem with the board listening to his concerns about doing so. For this he thinks his $115 million is justifiable?

The board of any bank can and should always err on the side of conservatism. Given Rubin's warnings about markets, it would have been easy to hold off on taking on more risk at the height of the credit bubble, especially since few board members had any real experience in risk management. It's therefore entirely reasonable to blame Rubin personally for the board's decisions in 2004-5. But all Rubin can say is that he doesn't "know what would have happened" if the decision had been different. Which is so far from any kind of apology for tens of billions of dollars in losses that it's laughable.

Wonderfully, the WSJ article ends with this:

Asked about what he feels he's accomplished, he responded: "It's a funny way to think about it. I think I've been a very constructive part of the Citigroup environment. That has become particularly manifest since August '07. I have been very involved."

Yeah, after paying someone $115 million, it's a bit funny to ask what that person has achieved. Shouldn't simply being very involved -- in a company which has lost nearly all of its value -- be enough?

In reality, Rubin failed even at the one job he was actually given, which was to be chairman of the executive committee of the board. As such, Rubin was instrumental in choosing two new CEOs for Citigroup. But in both cases, he found himself rushed into the choice, since he'd utterly failed to put in place any kind of well-thought-through succession plan. And right now, with Vikram Pandit's job security looking rocky, it looks like he might end up making the same mistake a third time. The wreckage that is Rubin's legacy at Citigroup hasn't come to an end yet.

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This article has 13 comments:

  •  
    Nov 30 08:13 AM
    I'm waiting to see whether Rubin will get a position of power in the oncoming administration.
    Reply | Link to Comment
  •  
    Nov 30 09:46 AM
    Ah yes, it seems a classic reaction to Wall Streets responsibilities. Rubins, not my job defense makes me wonder what was his job, Leadership Mr. Rubin means, "The buck stops here". You and your fellow directors failed at your jobs. At least have the stones to take responsibility for it.
    Reply | Link to Comment
  •  
    Nov 30 10:54 AM
    Prudent banking practice never changes. Poor management and irresposible judgement of the Board of Directors who wanted to "dance as long as the music is playing" and deplete loan loss reserves in 2007 when they should have been increasing them are soley responsible for the end results.

    Rubin has the experience and knew what was going on. He is responsible. The auditors reported the risk and lack of controls.

    Internal polictics descimated the experienced senior credit officers of brick and mortor lending with inexperienced credit card officers.Further the Audit Committee of the Board of Directors were and are accountable. Why isn't anyone even talking about a civil lawsuit against those legally accountable?
    Reply | Link to Comment
  •  
    Nov 30 11:24 AM
    The new federal administration should consider themselves warned about this clown.
    Reply | Link to Comment
  •  
    Nov 30 01:11 PM
    Pathetic. Rubin should "pursue other opportunities" or say he is "leaving to spend more time with his family". Spare the current employees and share holders any more failure and just leave. His claim that he would not have nay granular knowledge of the bank's strategy is complete nonsense. Long "C".
    Reply | Link to Comment
  •  
    Nov 30 01:49 PM
    The story told in this article is, in a microcosm, reason to doubt that things under Obama will be any different. When will these "Masters of the Universe" ever learn some humility
    Reply | Link to Comment
  •  
    Nov 30 02:39 PM
    Was it a year ago or more that a French bank went under because it had a clown(s) within it's organization that was wheeling and dealing derivatives? The bank nor the Government had enough regulations in place to know or prevent the event. Did the rest of the financial system take note-hell no, they just plowed on. I don't remember but I don't think there was anyone prosecuted-just like the mess we are in now. Only the taxpayers are going to suffer any real loss. Has Glass the glass steagall act been reinstated-of course not, it might put some restraints on the banking system and we all know that would be unacceptable-ha, what a joke!
    Reply | Link to Comment
  •  
    Nov 30 04:05 PM
    Robert Rubin wants Chairman of Federal Reserve and replace Ben Bernake. That's his power grab. He feels he deserves the position not because of a higher salary, but a duty to his country. Fire the arrogant SOB and let him work the streets.
    Reply | Link to Comment
  •  
    Nov 30 04:33 PM
    Off with his head!
    Reply | Link to Comment
  •  
    Nov 30 05:34 PM
    BR was good in the Mexican crisis but his time, unfortunately, is over. Except for his Treasury connections, which probably were critical in C's bail out, he's not been a player any more and, definitely, shouldn't be on Obama's team.

    BR is no BF (Brett Favre), who's overpaid, too, but earns at least some of his keep by turning teams around despite his age and wealth.

    Go Brett!!!

    Go Jets!!

    Retire in peace, (but absent golden parachute!), BR!
    Reply | Link to Comment
  •  
    Dec 01 12:17 AM
    At what point shall this person proclaim himself a man of integrity, an honorable man, a man willing to admit he made many mistakes. This guy is like President Bush and just can bring himself to say' I made a mistake. America, to our great loss, no loner has any great statesmen or stateswomen, just far too many political hacks both democratic and republican. We want an American, fair and impartial to lead.... a person who puts America First...... Remember how the founding Fathers were thinking in 1775 that how were need to think of ourselves as know. People, remember we are Americans and there isn't anything we can't do except win if we think otherwise.
    Reply | Link to Comment
  •  
    Dec 01 08:14 AM
    Personally, I believe this is a twofer for Rubin.
    First time:
    In my opinion, he knew that the tech comopanies were, in effect, cooking the books in the late 90's (making cheap and risky loans to companies to buy their products and thereby inflating their bottom line).
    Note that he bailed out of the organization one year before the reconning.
    Second time:
    Now he admits that he thought the credit market was similarly cooking its business and still he recomended his firm participate and even push the effort.
    Note that he again says not-my-bailiwick!

    How do you say corruption, hipocracy?
    Reply | Link to Comment
  •  
    Dec 01 03:01 PM
    For once I agree with the Author! Well done, Felix!!!
    Reply | Link to Comment
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