In Search of: Citigroup's Robert Rubin

It's hard to say what's tougher for Citigroup's chief executive Vikram Pandit as he struggles mightily to get Citigroup out of intensive care, as a notably difficult Wall Street analysts meeting bears down on him on May 9.

The bank has been racing to raise capital, with capital infusions and new share offerings, some $40b raised since November. Citi just announced it has widened a new stock offering from $3b to $4.5b.

Besides capital raising, when it comes to fixing Citi, the question for Pandit is, what should take top priority?

Is it cutting the fat marbled thick and wide throughout the beleaguered, obese bank? Unloading assets off of Citi's sagging $2.2t balance sheet at a time when no one wants them?

Or is it bringing once and for all some semblance of logic to a mindless business model that doesn't commend itself to reason, a supersize-me hodge podge of an institution, artichoke layers upon layers upon layers of operations, redundancies ad-infinitum, a crazy daisy chain of businesses hung together with masking tape and baling wire, operations bought pell mell starting years ago under former chief executive and chairman Sandy Weill?

Or is it both more and quite truly simpler than that?

Could Pandit's task also involve an endeavor as simple and clear as rain, what shareholders demanded at Citi's recent annual investor meeting at the Hilton Hotel in midtown Manhattan?

More accountability at the bank from its executives, more accountability in particular from its richly paid board of directors? In other words, leadership and responsibility from those well compensated to take care of the bank, its customers, its employees, its future? And doesn't hectically slapping together disparate operations invite zero accountability, a condition that has been dangerously poisoning the bank's bloodstream for years?

The answer to Citi insiders: the last one indeed.

A growing chorus of Citi insiders back efforts to vote out of their jobs what they feel is a purblind, do-nothing board, a pack of yes men who along with a quiescent band of "office politicians," its top management, didn't crack down when Citi execs decided to sink the bank knee-deep into the credit muck, Citi insiders say. Other insiders point to the fact that even Citi itself agrees, as it is now advertising for directors with financial expertise, ostensibly to prepare for the event a Citi director retires, a bank spokeswoman avers.

Citi has "had very little accountability," what's needed is a tectonic, corporate cultural shift as "dramatic as the tearing down of the Berlin Wall," as one Citi insider rather bombastically puts it.

Citi's board is populated by the current or former chairmen and CEOs of Alcoa, AT&T, Chevron, Time Warner, Dow Chemical, and Xerox. Also sitting on the board is Robert Rubin, chairman of the board's executive committee, a former US Treasury secretary and former co-chairman of Goldman Sachs, and subject of a decidedly mixed Sunday New York Times profile, "Where was the Wise Man?"

Rubin is now in the crosshairs for sitting right up the hallway from former chief executive Chuck Prince and for seemingly not stopping him from maniacally and dangerously "dancing" in subprime, as Prince himself put it last summer at the height of the credit crisis, as well as for pushing Citi to lever up its balance sheet, and for other criticisms which I'll get to in a minute, insiders tell me.

At the investor meeting, one shareholder asked: "Where was the board?" Another investor demanded: "I want to know, where were you Robert Rubin?" The investors' questions were met with a loud round of applause, but little in the way of a response.

In a statement Citi said: "Almost all major financial institutions have experienced significant problems associated with the credit markets and very few investment professionals saw this coming." It adds that: "Rubin and many others had observed that the financial markets had gone to levels of excess and that may lead to a disruption, but few, if any, saw the confluence of events that led to this extraordinary meltdown in the credit markets."

Rubin has a largely non-operational role at Citi. He doesn't oversee a P&L for any division. As he hobnobs with the likes of former US president Bill Clinton and former Federal Reserve chairman Alan Greenspan, Rubin provides guidance to bank executives, works with clients, and is considered to be a sterling name Citi can use to lure clients and smooth out problems with regulators.

Rubin is paid handsomely for his work, Citi sources say. As the Times has reported, Citi has paid Rubin $126.1m since 1999, according to Equilar, a research outfit. Citi confirmed that number.

To be sure, Pandit is winning high marks from Wall Streeters for his rapid moves cleaning up Citi's botched handling of the housing and credit crisis which led to the ouster of former chief executive Prince last fall. Citi has seen about $145b vaporized out of its market value in a year, as it has been hit with a record $40b in total writedowns and increased credit reserves since the start of 2007.

Under Pandit, Citi has cut its dividend by 40%, moved to slash its workforce by more than 30,000 over the next two years, (a total of 13,000 announced in just the last two quarters), plus he's restructuring the bank, giving marching orders to his top lieutenants to present a strategy for their units in the coming year. Pandit came to Citi after Rubin got the bank to buy Pandit's Old Lane hedge fund.

Sources say that it's out of the question that the bank will be broken up, ("nonsense," says a bank executive) and instead Citi will unload as much as $500b in assets, nail-bitingly tough to do as there still remains a blackout in the credit markets.

I've reported much of this to you before, including the praise Pandit has been winning from Citi insiders and analysts on his plans to turn around the bank and apply the shock paddles to its balance sheet ("The Changes Coming at Citigroup," March 10.)

Citi's annual investor meeting was so electrically charged, security guards stopped visitors at the door and checked their bags, relieving them of their fruit, Citi insiders say. The fear was that disgruntled investors or employees would whip things like oranges at executives out of anger, Citi insiders say.

Dodging fruit projectiles was one thing. Enduring withering investor and employee criticism was another.

As the Citi directors, including Rubin, huddled in the front row, Pandit took to the microphone under the hot klieg lights. He talked about his plans to get the damaged bank to take advantage of global growth opportunities, the idea being to hopefully reap new cash flow from new businesses to cover losses from old, souring operations. Pandit also talked about his plans to redirect shareholder capital.

And in particular, Pandit noted how Citi now needs to get rid of its "hobbies," what some sources at the bank call its self- indulgence in buying companies that don't exactly fit. Citi sources say that possibly includes selling Quilter, a London-based wealth advisory firm with $10.9b in assets under management which Citi just bought in December 2006. A Citi spokeswoman declined comment.

And Pandit talked about his cost-cutting regime.

Behind the scenes, Citi insiders are talking about Pandit's crackdown on the use by Citi's top executives of Citigroup's corporate jets, a perk enjoyed by executives at companies around the world.

Insiders say executives can no longer willy nilly use a Citi jet whenever they want, to Rubin's chagrin, Citi insiders say. Citi has a limited number of corporate jets, with a number of senior executives qualified to use them. A Citi spokeswoman says she is unaware of a new regime for the jets, but that the bank is careful in ensuring "corporate aircraft is used appropriately."

When he is told he can't use the Citi jet, Rubin routinely calls up Citi executives to complain, angrily threatening to resign, Citi sources say. A Citi spokeswoman adamantly says: "That is untrue."

On one occasion, Rubin was asked to leave 20 minutes earlier from a Caribbean airport so that Citi could turn that plane as well as its crew around more quickly to save money as they were needed for another Citi job, Citi sources say. Rubin complained and threatened to resign, these bank insiders add. "That's untrue" too, says the Citi spokeswoman.

Rubin has an aircraft time-sharing agreement with Citiflight, entered into in August 2006, in which he reimbursed Citi for the personal use of the plane, amounting to $578,889 last year and $641,607 in 2006. "That was his idea, to pay for his personal use of the jet," says the Citi spokeswoman.

Not disclosed are the annual dollar costs of Rubin's business trips or any other executives' business trips on the planes. Also not disclosed are the annual sums Citi incurred for Rubin's personal use of the planes prior to August 2006. And Citi does not disclose the annual sums it pays for other executives' personal use of its planes, if at all. Other companies fail to make similar disclosures, a problem for corporate governance experts.

The Citi spokeswoman says Citi's rules prohibited Rubin and others from reimbursing the bank for their personal use of the jets prior to 2006. Citi also didn't break out business costs for planes and travel because disclosure rules from the Securities and Exchange Commission didn't require them, the spokeswoman adds.

Given all this, insiders want more disclosures not just for these expenses or, say, how much Rubin actually spends wining and dining clients or government officials, but on "what exactly does he do for Citigroup, what does he do every day, and what does the bank get for its money?," one executive asks.

Others say Rubin has been instrumental in helping to plug Citi's balance sheet holes, (though his advice to lever up did blast some divots out of it, they say), pointing to the fact that Rubin flew to the Middle East to help get a capital injection for the bank.

Still, insiders are buzzing that, at a time when Citi is facing an avalanche of criticism over its failure to weed out bad subprime assets, at a time when Citi is forced to dispense with 30,000 workers because its balance sheet is potted with problems, Rubin is focused on weeding out hard blueberries in his breakfast cereal.

Most mornings Rubin eats cereal for breakfast in his office at Citi, sources say. But each time he hits a hard blueberry in his cereal, Rubin gets incensed, bank insiders say. So a worker in the dining room now must spend time checking to make sure Rubin gets no hard blueberries in his cereal, these people note.

"Bob has fresh fruit for breakfast and he pays for it," says a Citi spokeswoman. All good--so long as no one is whipping it at him.