In September 2007, with Wall Street confronting a crisis caused by too many souring mortgages, Citigroup executives gathered in a wood-paneled library to assess their own well-being.
There, Citigroup's chief executive, Charles O. Prince III, learned for the first time that the bank owned about $43 billion in mortgage-related assets. He asked Thomas G. Maheras, who oversaw trading at the bank, whether everything was OK.
Maheras told his boss that no big losses were looming, according to people briefed on the meeting who spoke only on the condition that they not be named.
For months, Maheras' reassurances to others at Citigroup had quieted internal concerns about the bank's vulnerabilities. But this time, a risk-management team was dispatched to more rigorously examine Citigroup's huge mortgage-related holdings. They were too late, however: Within several weeks Citigroup would announce billions of dollars in losses.
Normally, a big bank would never allow the word of just one executive to carry so much weight. Instead it would have its risk managers aggressively look over any shoulder and guard against trading or lending excesses.
But many Citigroup insiders say the bank's risk managers never probed deeply enough. Because of long-standing ties that clouded their judgment, the very people charged with overseeing deal-makers eager to increase short-term earnings - and executives' multimillion-dollar bonuses - failed to rein them in, these insiders say.
Today, Citigroup, once the nation's largest and mightiest financial institution, has been brought to its knees by more than $65 billion in losses, write-downs for troubled assets and charges to account for future losses. More than half of that amount stems from mortgage-related securities created by Maheras' team - the same products Prince fretted about in that 2007 meeting.
Citigroup's stock has plummeted to its lowest price in more than a decade, closing Friday at $3.77. At that price, the company is worth just $20.5 billion, down from $244 billion two years ago. Waves of layoffs have accompanied that slide, with about 75,000 jobs already gone or set to disappear from a work force that numbered about 375,000 a year ago.
While much of the damage inflicted on Citigroup and the broader economy was caused by errant, high-octane trading and lax oversight, critics say, blame also reaches into the highest levels at the bank. The downfall was years in the making and involved many in its hierarchy, particularly Prince and Robert E. Rubin, an influential director and senior adviser.
