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LATE  TO EARLY : BILLIONS IN SUBPRIME LOSSES 

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group, including the CDO desk. Around March or April , in contrast with the
securitization desk, Citigroup’s CDO desk increased its purchases of mortgage-
backed securities because it saw the distressed market as a buying opportunity. 
“Effective communication across businesses was lacking,” the company’s regula-
tors later observed. “Management acknowledged that, in looking back, it should have
made the mortgage deterioration known earlier throughout the firm. The Global
Consumer Group saw signs of sub-prime issues and avoided losses, as did mortgage
backed securities traders, but CDO structures business did so belatedly—[there was]
no dialogue across businesses.” 
Co-head of the CDO desk Janice Warne told the FCIC that she first saw weaknesses
in the underlying market in early . In February, when the ABX.HE.BBB- - fell
to  below par, the CDO desk decided to slow down on the financing of mortgage
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securities for inventory to produce CDOs. Shortly thereafter, however, the same ABX
index started to rally, rising to  below par in March and holding around that level
through May. So, the CDO desk reversed course and accelerated its purchases of inven-
tory in April, according to Nestor Dominguez, Warne’s co-head on the CDO desk. 
Dominguez said he didn’t see the market weakening until the summer, when the index
fell to less than  below par. 
Murray Barnes, the Citigroup risk officer assigned to the CDO business, approved
the CDO desk’s request to temporarily increase its limits on purchasing collateral.
Barnes observed, in hindsight, that rather than looking at the widening spreads as an
opportunity, Citigroup should have reassessed its assumptions and examined
whether the decline in the ABX was a sign of strain in the mortgage market. He ad-
mitted “complacency” about the desk’s ability to manage its risk. 
The risk management division also increased the CDO desk’s limits for retaining
the most senior tranches from  billion to  billion in the first half of . As at
Merrill, traders and risk managers at Citigroup believed that the super-senior
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tranches carried little risk. Citigroup’s regulators later wrote, “An acknowledgement
of the risk in its Super Senior AAA CDO exposure was perhaps Citigroup’s ‘biggest
miss.’ . . . As management felt comfortable with the credit risk of these tranches, it be-
gan to retain large positions on the balance sheet. . . . As the sub-prime market began
to deteriorate, the risk perceived in these tranches increased, causing large write-
downs.” Ultimately, losses at Citigroup from mortgages, Alt-A mortgage–backed se-
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curities, and mortgage-related CDOs would total about  billion, nearly half of
Citigroup’s capital at the end of . About  billion of that loss related to protec-
tion purchased from the monoline insurers. 
Barnes’s decision to increase the CDO risk limits was approved by his superior,
Ellen Duke. Barnes and Duke reported to David Bushnell, the chief risk officer. Bush-
nell—whom Prince called “the best risk manager on Wall Street”—told the FCIC that
he did not remember specifically approving the increase but that, in general, the risk
management function did approve higher risk limits when a business line was grow-
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ing. He described a “firm-wide initiative” to increase Citigroup’s structured prod-
ucts business. 
Perhaps what is most remarkable about the conflicting strategies employed by the