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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

CITIGROUP: “THAT WOULD NOT IN ANY WAY
HAVE EXCITED MY ATTENTION”
Five days after O’Neal’s October  departure from Merrill Lynch, Citigroup an-
nounced that its total subprime exposure was  billion, which was  billion more
than it had told investors just three weeks earlier. Citigroup also announced it would
be taking an  to  billion loss on its subprime mortgage–related holdings and
that Chuck Prince was resigning as its CEO. Like O’Neal, Prince had learned late of
his company’s subprime-related CDO exposures. Prince and Robert Rubin, chairman
of the Executive Committee of the board, told the FCIC that before September ,
they had not known that Citigroup’s investment banking division had sold some
CDOs with liquidity puts and retained the super-senior tranches of others. 
Prince told the FCIC that even in hindsight it was difficult for him to criticize any
of his team’s decisions. “If someone had elevated to my level that we were putting on a
 trillion balance sheet,  billion of triple-A-rated, zero-risk paper, that would not
in any way have excited my attention,” Prince said. “It wouldn’t have been useful for
someone to come to me and say, ‘Now, we have got  trillion on the balance sheet of
assets. I want to point out to you there is a one in a billion chance that this  billion
could go south.’ That would not have been useful information. There is nothing I can

do with that, because there is that level of chance on everything.” In fact, the odds
were much higher than that. Even before the mass downgrades of CDOs in late ,
a triple-A tranche of a CDO had a  in  chance of being downgraded within  years
of its original rating. 
Certainly, Citigroup was a large and complex organization. That  trillion bal-
ance sheet—and . trillion off-balance sheet—was spread among more than ,
operating subsidiaries in . Prince insisted that Citigroup was not “too big to

manage.” But it was an organization in which one unit would decide to reduce
mortgage risk while another unit increased it. And it was an organization in which
senior management would not be notified of  billion in concentrated exposure—
 of the company’s balance sheet and more than a third of its capital—because it
was perceived to be “zero-risk paper.” 
Significantly, Citigroup’s Financial Control Group had argued in  that the liq-
uidity puts that Citigroup had written on its CDOs had been priced for investors too

cheaply in light of the risks. Also, in early , Susan Mills, a managing director in
the securitization unit—which bought mortgages from other companies and bun-
dled them for sale to investors—took note of rising delinquencies in the subprime

market and created a surveillance group to track loans that her unit purchased. By
mid-, her group saw a deterioration in loan quality and an increase in early pay-
ment defaults—that is, more borrowers were defaulting within a few months of get-
ting a loan. From  to , Mills recalled before the FCIC, the early payment

default rates nearly tripled from  to  or . In response, the securitization unit
slowed down its purchase of loans, demanded higher-quality mortgages, and con-
ducted more extensive due diligence on what it bought. However, neither Mills nor
other members of the unit shared any of this information with other divisions in Citi-