Citigroup was back in the news again last Tuesday when the Consumer Financial Protection Bureau (CFPB) reported that its banking unit, Citibank, was among the three banks with the highest average monthly complaints filed against it alleging credit card abuses. (The other two banks were Capital One and JPMorgan Chase.)
This is the tip of the iceberg when it comes to Citigroup and its haloed Citibank.
On May 20, 2015, Citigroup’s banking division pleaded guilty to a criminal felony charge for foreign currency rigging following a decade of serial charges against the global behemoth. (See rap sheet below.) Instead of putting this incorrigible recidivist out of business, the Federal government has continued to allow its shady proclivities to be perpetuated against an unsuspecting public.
The U.S. central bank, the Federal Reserve, which incompetently oversees Citigroup as it takes on massive derivative risk and continues to fleece the public, saw fit to secretly funnel $2 trillion of loans into Citigroup’s collapsing carcass from 2007 to at least 2010 at almost zero interest rates. During that period, Citigroup was allowed to continue to charge double-digit interest rates on its credit cards and put struggling homeowners out on the street from its tricked-up mortgages. The $2 trillion in secret loans came on top of the publicly announced $45 billion in equity infusions and more than $300 billion in asset guarantees by the Federal government to keep this ethically-challenged institution alive.
Why would the Federal government want to bail out such a recidivist lawbreaker instead of simply putting it out of business? Citigroup is one of those too-big-to-fail, too-big-to-jail and too-interconnected-to-fathom financial goblins that continue to threaten the U.S. financial landscape today.
The CFPB’s report last week brought to mind a Harper’s article by Andrew Cockburn in April 2015. Cockburn had traced the history of how Sandy Weill had parlayed Commercial Credit through a series of mergers that, thanks to the repeal of the Glass-Steagall Act by President Clinton & Company in 1999, had culminated in the too-big-to-fail Citigroup.
With the blessing of its regulators, including the Federal Reserve, Citigroup was allowed to replicate the precise banking model which had brought on the 1929 crash and Great Depression: it was allowed to hold savings deposits while making wild speculations on Wall Street and selling bogus stocks to the hapless public.
While today Bill Dudley, President of the Federal Reserve Bank of New York, incessantly fingers his worry beads and ponders what it will take to change the jaded culture of Wall Street mega banks, Cockburn quickly drilled down to the problem: Citigroup grew out of a loan sharking operation that permeates its culture.
“Weill had recently been eased out from Shearson Lehman/American Express [in 1985], a financial conglomerate he had helped to build. Eager to get back in the game, he bought a Baltimore firm called Commercial Credit. In the view of Weill and his protégé, Jamie Dimon [now CEO at JPMorgan Chase], their new acquisition was in the beneficent business of supplying ‘consumer finance’ to ‘Main Street America.’ Their office receptionist, Alison Falls, thought otherwise. Overhearing their conversation at work one day, she called out, ‘Hey, guys, this is the loan-sharking business. Consumer finance is just a nice way to describe it.’
“Falls had it right. Commercial Credit made loans to poor people at predatory interest rates. Strapped to pay off their loans, borrowers were encouraged to refinance, with added fees each time. Gail Kubiniec, who was then an assistant sales manager at the company’s branch office in Tonawanda, New York, remembers that the basic aim was to lend money to ‘people uneducated about credit. You could take a five-hundred-dollar loan and pack it with extra items like life insurance—that was very lucrative. Then you could roll it over with more extra items, then reroll the new loan, and the borrower would go on paying and paying and paying.’ ”
Cockburn includes an excerpt from an affidavit that Kubiniec had filed with the Federal Trade Commission in 2001 about the practices of Commercial Credit, which had changed its name to CitiFinancial:
“I and other employees would often determine how much insurance could be sold to a borrower based on the borrower’s occupation, race, age, and education level. If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the coverages CitiFinancial offered. The more gullible the consumer appeared, the more coverages I would try to include in the loan.”
Wall Street On Parade took a look at the CFPB’s consumer complaint database to peruse the tens of thousands of complaints that have been filed against Citigroup and its banking unit, Citibank, since the CFPB began operations in 2011. The complaints range from debt collection practices to credit card abuses to student loan gouging to mortgage and foreclosure abuse.
Given the serial charges and settlements by Citigroup as listed below, one has to seriously wonder if fraud has not only become a business model at Wall Street banks (as Senator Bernie Sanders of Vermont has stated) but an accepted business model by Wall Street’s regulators and the U.S. Justice Department.
The following is just a sampling of charges brought against Citigroup and/or its various units since December 2008:
December 11, 2008: SEC forces Citigroup and UBS to buy back $30 billion in auction rate securities that were improperly sold to investors through misleading information.
February 11, 2009: Citigroup agrees to settle lawsuit brought by WorldCom investors for $2.65 billion.
July 29, 2010: SEC settles with Citigroup for $75 million over its misleading statements to investors that it had reduced its exposure to subprime mortgages to $13 billion when in fact the exposure was over $50 billion.
October 19, 2011: SEC agrees to settle with Citigroup for $285 million over claims it misled investors in a $1 billion financial product. Citigroup had selected approximately half the assets and was betting they would decline in value.
February 9, 2012: Citigroup agrees to pay $2.2 billion as its portion of the nationwide settlement of bank foreclosure fraud.
August 29, 2012: Citigroup agrees to settle a class action lawsuit for $590 million over claims it withheld from shareholders’ knowledge that it had far greater exposure to subprime debt than it was reporting.
July 1, 2013: Citigroup agrees to pay Fannie Mae $968 million for selling it toxic mortgage loans.
September 25, 2013: Citigroup agrees to pay Freddie Mac $395 million to settle claims it sold it toxic mortgages.
December 4, 2013: Citigroup admits to participating in the Yen Libor financial derivatives cartel to the European Commission and accepts a fine of $95 million.
July 14, 2014: The U.S. Department of Justice announces a $7 billion settlement with Citigroup for selling toxic mortgages to investors. Attorney General Eric Holder called the bank’s conduct “egregious,” adding, “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”
November 2014: Citigroup pays more than $1 billion to settle civil allegations with regulators that it manipulated foreign currency markets. Other global banks settled at the same time.
May 20, 2015: Citicorp, a unit of Citigroup becomes an admitted felon by pleading guilty to a felony charge in the matter of rigging foreign currency trading, paying a fine of $925 million to the Justice Department and $342 million to the Federal Reserve for a total of $1.267 billion. The prior November it paid U.S. and U.K. regulators an additional $1.02 billion.
May 25, 2016: Citigroup agrees to pay $425 million to resolve claims brought by the Commodity Futures Trading Commission that it had rigged interest-rate benchmarks, including ISDAfix, from 2007 to 2012.
July 12, 2016: The Securities and Exchange Commission fined Citigroup Global Markets Inc. $7 million for failure to provide accurate trading records over a period of 15 years. According to the SEC: “CGMI failed to produce records for 26,810 securities transactions comprising over 291 million shares of stock and options in response to 2,382 EBS requests made by Commission staff, between May 1999 and April 2014, due to an error in the computer code for CGMI’s EBS response software. Despite discovering the error in late April 2014, CGMI did not report the issue to Commission staff or take steps to produce the omitted data until nine months later on January 27, 2015. CGMI’s failure to discover the coding error and to produce the missing data for many years potentially impacted numerous Commission investigations.”
Richard Bowen, Testifying Before the Financial Crisis Inquiry Commission
Editor’s Note: Richard Bowen is the former Citigroup Senior Vice President who repeatedly alerted his superiors in writing that potential mortgage fraud was taking place in his division. At one point, Bowen emailed a detailed description of the problem to top senior management, including Robert Rubin, the former U.S. Treasury Secretary and then Chairman of the Executive Committee at Citigroup. Bowen’s reward for elevating serious ethical issues up the chain of command was to be relieved of most of his duties and told not to come to the office. Bowen testified before the Financial Crisis Inquiry Commission in 2010. In 2011, Bowen had the courage to pull back the curtain on Citigroup’s moral code on the CBS program 60 Minutes. Bowen is today a Professor of Accounting at the University of Texas at Dallas and speaks widely on the ethical breakdowns that led to the 2008 Wall Street financial collapse. Professor Bowen’s analysis of Citigroup’s latest foray into changing its ethical culture appears below.
Who’s Trying Now to Save Citigroup’s Soul?
By Richard Bowen: March 27, 2017
The headline in last Saturday’s Wall Street Journal captured my immediate attention. The Banker-Turned-Seminarian Trying to Save Citigroup’s Soul… What??
Supposedly Citigroup is taking a “new” approach to the cultural and other issues they have had for years and have hired Dr. David Miller, a Princeton University professor, theologian and former banker to be their “on call ethicist.” Dr. Miller heads the University’s Faith & Work Initiative and has worked with Citi intermittently over the last three years. He says, “You need banking, just like you need pharmaceuticals.”
His role, to provide “advice and input to senior management.” This includes CEO Michael Corbat who recently raised an idea that came from Dr. Miller. Mr. Corbat said, when faced with an uncertain situation, “ask the four M’s: What would your mother, your mentor, the media and—if you’re inclined—your maker think?” The problem, he adds, isn’t the bad apples. Rather, it is how easy it is for good employees to justify bad decisions when they face gray-zone questions.
And Citi has had more than its share of gray zone areas. Citigroup has had numerous issues and has earned a reputation for ethical problems before and after the financial crisis. Dr. Miller was brought in by Mr. Corbat who was surprised when the company’s employee surveys showed some workers weren’t comfortable escalating concerns about possible wrongdoing.
He was also disturbed by the banking industry’s image problem overall. “If you look today at what the poll numbers say, what the general population says, there is distrust of banks,” Mr. Corbat said in an interview.
The article goes on to say, “Citigroup is embracing Dr. Miller’s idea (influenced by Plato and Aristotle) of three lenses to apply in ethical decision-making, an approach: Is it right, good and fitting? Citigroup executives have added: Is it in our clients’ interest, does it create economic value, and is it systemically responsible?”
The bank is sharing these ideas with employees worldwide, working them into its ethics and training manuals and mission statement and posting it on the wall of its Manhattan headquarters lobby.
But wait! This is not a “new” idea.
I was at Citi, when in 2003 they were fined $1.5 billion for “false and misleading research reports;” and in 2004 when they were hit with $5 billion in fines and settlements associated with Enron and WorldCom. These and other scandals in Japan Private Banking and the European bond market led to the Federal Reserve (in 2005) to publicly announce that they would not approve any major Citigroup mergers and acquisitions, until the company resolved their issues.
As a result of all this and more, Citi vowed that these issues would not happen again. And in March 2005, then CEO Chuck Prince announced his strategy to transform the financial giant and to provide a new direction for the future, called the “Five Point Ethics Plan” to: improve training, enhance focus on talent and development, balance performance appraisals and compensation, improve communications, and strengthen controls. A comprehensive ethics policy was implemented requiring annual training by all employees. Employees could be fired if they did not follow the new ethics plan.
And Mr. Prince announced, with great fanfare, the hiring of Lewis B. Kaden, a former professor and director of Columbia University’s Center for Law and Economic Studies and moderator of PBS’s popular Ethics in America TV series, which earned a Peabody Award. Mr. Kaden was named Vice Chairman and was over ethics and other areas. In the trenches we called him the Ethics Czar.
Well despite desperation, a new ethics policy, training and fear, the Five Point Ethics Plan didn’t work. By now you know by heart of their subsequent mortgage fraud and what led to my and Sherry Hunt’s blowing the whistle on Citi. And following that there were the LIBOR and FOREX trading scandals.
To this day, Citi still has ethics issues as witness one of the latest, their being investigated for hiring practices that could violate foreign bribery laws.
We can “talk” culture all day long, mandate it, instill fear re firing, but if leadership is not an example and role model for ethical behavior… well it’s not going to happen! If a company wants to promote and assure ethical standards are followed then transparency, trust and developing an ethical culture based on guiding principles are critical.
In a previous post I quoted Ms.Yves Smith, commenting on an article “Can Philosophy Stop Bankers From Stealing?” by Lynn Parramore, a senior research analyst at the Institute for New Economic Thinking. Ms. Parramore states, “Pernicious cultural norms inside American banks and regulatory agencies have crowded out fundamental moral principles…”
Ms. Parramore quotes Ed Kane, Professor of Finance at Brown College, “Ed Kane believes it’s vital to discuss moral questions, in plain English, without abstractions. Following his own advice, he is blunt in characterizing some of the behavior in the banking industry in recent years: “Theft is a forced taking of other people’s resources,” he says. ‘That’s what’s going on here.” Kane urges a deep inquiry into our culture to understand why bankers so commonly get away with crimes in the United States.”
Evidence shows Citi did not change its culture. It did not follow its own ethics plan. It may presently have a 60 page ethics policy, however, that has proved to not be enough. Posting it does not change behavior.
Who knows, perhaps this time around it may work. Dr. Miller believes banks can change. “To make the assumption that an organization cannot be more ethical than it was is to give up before you start… It is not naive. It is a realistic and necessary goal.”
Am I skeptical? Heck yes. Let’s see if Citigroup has the moral fortitude to indeed finally make good culture changes happen. For the sake of our country, I wish Dr. Miller much success.
By Pam Martens and Russ Martens: March 21, 2017
The one percent now effectively owns Washington: the making of our laws, the writing of Executive Orders, the running of Federal agencies with the power to put crooks among the one percent in prison – or not, and they are now the overseers of gutting Federal programs that benefit the 99 percent.
One thought comes to mind about this state of affairs. The abolitionist and writer, Frederick Douglass, once said:
“Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither persons nor property will be safe.”
The majority of Americans, whether they are yet aware or not, now walks in the shoes of Frederick Douglass. We’re all minorities now. The billionaires and their lackeys rule.
How did a society that fought a brutal and bloody revolution to throw off the yoke of one percent rule end up where we find ourselves today?
After a decade of thinking and researching and writing about little else, we believe the major causes are as follows: a highly consolidated corporate media that failed to tackle these issues with regularity and force; a timid Internal Revenue Service that was afraid to take on the billionaire class for setting up faux citizen front groups that drowned out the voice and views of real citizens; and, of course, an abjectly corrupt system of billionaire financing of political campaigns.
Below is a small sampling of articles from our archives which should have warned us that we were rapidly devolving as a democracy and that a full scale plutocracy was in our future.