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

which Citigroup had issued liquidity puts began losing value, and their interest rates
began rising. The liquidity puts would be triggered if interest rates on the asset-
backed commercial paper rose above a certain level.
The Office of the Comptroller of the Currency, the regulator of Citigroup’s na-
tional bank subsidiary, had expressed no apprehensions about the liquidity puts in
. But by the summer of , OCC Examiner-in-Charge John Lyons told the
FCIC, the OCC became concerned. Buying the commercial paper would drain 
billion of the company’s cash and expose it to possible balance-sheet losses at a time
when markets were increasingly in distress. But given the rising rates, Lyons also said
Citigroup did not have the option to wait. Over the next six months, Citigroup pur-
chased all  billion of the paper that had been subject to its liquidity puts. 
On a July  conference call, CFO Gary Crittenden told analysts and investors
that the company’s subprime exposures had fallen from  billion at the end of 
to  billion on June . But he made no mention of the super-senior exposures and
liquidity puts. “I think our risk team did a nice job of anticipating that this was going
to be a difficult environment, and so set about in a pretty concentrated effort to re-

duce our exposure over the last six months,” he said. A week later, on a July  call,
Crittenden reiterated that subprime exposure had been cut: “So I think we’ve had
good risk management that has been anticipating some market dislocation here.” 
By August, as market conditions worsened, Citigroup’s CDO desk was revaluing
its super-senior tranches, though it had no effective model for assigning value. How-
ever, as the market congealed, then froze, the paucity of actual market prices for these
tranches demanded a model. The New York Fed later noted that “the model for Super
Senior CDOs, based on fundamental economic factors, could not be fully validated
by Citigroup’s current validation methodologies yet it was relied upon for reporting
exposures.” 
Barnes, the CDO risk officer, told the FCIC that sometime that summer he met
with the co-heads of the CDO desk to express his concerns about possible losses on
both the unsold CDO inventory and the retained super-senior tranches. The message
got through. Nestor Dominguez told the FCIC, “We began extensive discussions
about the implications of the . . . dramatic decline of the underlying subprime mar-

kets, and how that would feed into the super-senior positions.” Also at this time—
for the first time—such concerns reached Maheras. He justified his lack of prior
knowledge of the billions of dollars in inventory and super-senior tranches by point-
ing out “that the business was appropriately supervised by experienced and highly
competent managers and by an independent risk group and that I was properly ap-
prised of the general nature of our work in this area and its attendant risks.” 
The exact dates are not certain, but according to Bushnell, he remembers a discus-
sion at a “Business Heads” meeting about the growing mark-to-market volatility on
those super-senior tranches in late August or early September, well after Citigroup
started to buy the commercial paper backing the super-senior tranches of the CDOs

that BSAM managed. This was also when Chairman and CEO Prince first heard
about the possible amount of “open positions” on the super-senior CDO tranches
that Citigroup held: “It wasn’t presented at the time in a startling fashion . . . [but]