“So, how long a grace period are you giving Chuck Prince?” I asked Alwaleed.
“The grace period is over,” he said tightly. “You can quote me on that.”
By November 2008, Chuck Prince was long gone, but Alwaleed was still heaping scorn on his tenure. He recounted a meeting with Sandy Weill, which occurred at some unspecified time in the past. “Immediately when he met me he said, ‘Prince Alwaleed, I’m sorry,’ and I asked him, ‘Sorry for what, Sandy?’ He said, ‘I’m sorry for appointing Chuck Prince.’”
The blame game was on. Alwaleed said, “Frankly speaking, the destruction of all that took place recently, clearly has to be attributed to the previous management. Now it is the Vikram era, and you have to look at the positive side, at what could take place at Citigroup. Open a new page, put the worst behind us.”
Of course, that was before the revelations came about Citigroup’s troubles, or before Pandit and the Feds began to lock horns. In June 2009 it was reported that Federal Deposit Insurance Corporation chief Sheila Bair was pushing hard for a shake-up at Citi that would include getting rid of Pandit.
I asked Pandit, “How much heat are you feeling, and will you step aside?” He replied in his typically even-mannered way, “Given the losses we’ve taken, and until we return to sustainable profitability, we will have speculation. That doesn’t make the speculation correct.” He didn’t say so, but by implication Pandit felt that Bair’s attacks were unwarranted, in light of his aggressive efforts to streamline the company. “We’re a much smaller Citigroup,” he said. “More important, we want to be Citicorp, not Citigroup, going forward. Citicorp is our global bank for consumers and businesses. At the same time, we’ve also decided there are some businesses we need to sell. We closed one of them, the Morgan Stanley Smith Barney joint venture. And we’re methodically selling and rationalizing what we call Citi Holdings.”
Bair was unsuccessful in forcing an ouster of Pandit; there was an almost deadening silence around her charges. No one else seemed willing to step up and call for Pandit to go. Indeed, many people believed that it was wrong to blame Pandit, a relatively recent arrival, for Citi’s problems. And he seemed to be taking action to make the company more manageable. In fact, Pandit would end up cutting $500 billion from the balance sheet by selling assets and very methodically raising cash.
Citi was saved, for the time being, but it was still limping along. Amid $45 billion in bailouts and Pandit’s streamlining campaign, Sandy Weill was in the background, trying to get involved—maybe even to come back, although that seemed like wishful thinking on the part of people like Prince Alwaleed and Weill himself. Like Hank Greenberg with AIG, Weill might have thought he could play a role, but his efforts to insinuate himself were rebuffed—as were Greenberg’s. These old fighters, who, one must not forget, were the architects and engineers of enormous global enterprises, could not let go.
Jim Rogers did not feel much pity for the perpetrators when he talked to me about the collapse of integrity within the system. “They all took huge, huge profits,” he railed. “Who was the head of Citigroup? Chuck Prince? I mean, how many hundreds of millions of dollars did Prince take out of the company? How many hundreds of millions of dollars did other Citibank execs take out of the company? Wall Street has paid something like $40 billion or $50 billion in bonuses in the past decade. Look at Stan O’Neal at Merrill Lynch. He got $150 million for leaving, even though he ruined the company. Look at the guy at Fannie Mae, Franklin Raines. He did worse accounting than Enron. Fannie Mae and Freddie Mac alone did nothing but pure fraudulent accounting year after year, and yet that guy’s walking around with millions of dollars. What the hell kind of system is this?”
A year after the weekend that changed Wall Street, I broadcast a special on CNBC, called One Year Later: Reflections from the Street. Along with my producers at CNBC, I gathered some of the primary players from that weekend—all older, wiser, and perhaps sobered by the wild run that nearly destroyed our financial system.
“There’s a calmness back in the market,” John Mack told me, “although people are still shell-shocked. Everyone has gone out of their way—including we at Morgan Stanley—to make sure that we’re in a better position as we go forward in these markets, meaning we’ve raised a lot of capital. We have a new regulator in the Federal Reserve as a bank holding company. That’s a big change from where we were a year ago. It’s huge. And, of course, we’ve looked at our risk management—where did we make mistakes, where do we need to add more resources? So, one year later everyone is feeling better, but everyone is still concerned.”
This response—relief on one hand, concern on the other—was reflected in the comments of nearly everyone I spoke to during that period. But the attitude was like that of a patient who was on life support a week ago being upgraded to critical. He’s not dying anymore but he’s still very, very sick.
“It has been like a slow-moving cardiac arrest,” Mohamed El-Erian observed. “As opposed to a sudden stop, you’ve had a number of smaller stops in the system. And we kept the patient, which is the financial system, alive in the ICU, using a tremendous amount of medication. And the patient is better, but
