Rubin’s Teflon Finally Wears Off

In one of the most ill-advised pieces of PR I can remember, Bob Rubin has given an on-the-record interview to the WSJ, in which he takes no blame or responsibility for anything which has gone wrong at Citigroup. The reaction in the blogosphere has been, predictably, swift and brutal, helped along by the fact that Rubin’s famous charm clearly hasn’t worked on his interviewers, Ken Brown and David Enrich. Here’s their lede:

Under fire for his role in the near-collapse of Citigroup Inc., Robert Rubin said its problems were due to the buckling financial system, not its own mistakes, and that his role was peripheral to the bank’s main operations even though he was one of its highest-paid officials.

It just gets worse from there: by refusing to admit to any mistakes at all, Rubin has garnered himself zero sympathy. Rubin has been surprisingly bulletproof until now: while he’s had many critics, his reputation has largely remained intact. But with this interview, it’s disappeared at a stroke: no one can read it and think of him as anything other than a pompous and out-of-touch plutocrat, puffed up with much more self-regard than common sense.

For instance, he’s quick to the not-my-bailiwick defense:

Mr. Rubin said it is a company’s risk-management executives who are responsible for avoiding problems like the ones Citigroup faces. "The board can’t run the risk book of a company," he said. "The board as a whole is not going to have a granular knowledge" of operations.

But board members don’t get paid $115 million. If he wasn’t playing a central role when it came to Citi’s risk book, what was he doing for the money? It’s not clear, but his comments don’t help much:

Mr. Rubin said his pay was justified and that there were higher-paying opportunities available to him. "I bet there’s not a single year where I couldn’t have gone somewhere else and made more," he said.

Justified? What does that possibly mean? And as for making more money elsewhere, I suspect that many Citigroup shareholders wish that he’d done precisely that. But not only was Rubin incredibly well-paid, he also had to all intents and purposes tenure at Citigroup: as a member of the board, he was an employer of the CEO rather than an employee, so there was really no one who could fire him.

The most astonishing instance of Rubin failing to justify his salary, however, comes later:

Mr. Rubin was deeply involved in a decision in late 2004 and early 2005 to take on more risk to boost flagging profit growth, according to people familiar with the discussions. They say he would comment that Citigroup’s competitors were taking more risks, leading to higher profits. Colleagues deferred to him, as the only board member with experience as a trader or risk manager…

At the time, Mr. Rubin was saying in speeches that most assets were overvalued. He would quote a noted investor he knew as saying that "the only undervalued asset class in the world is risk."

But it wouldn’t have been right for the board to act on his concerns, Mr. Rubin said in the interview: "I wouldn’t run a financial institution based on someone’s view about what markets would do."

The cognitive disconnect here is simply staggering. Rubin’s going around saying that institutions are taking on too much risk, but he’s also telling the Citi board that it should take on even more risk. He had no problem with the board following his lead when he said he wanted Citi to take extra risks, but he says that he would have had a problem with the board listening to his concerns about doing so. For this he thinks his $115 million is justifiable?

The board of any bank can and should always err on the side of conservatism. Given Rubin’s warnings about markets, it would have been easy to hold off on taking on more risk at the height of the credit bubble, especially since few board members had any real experience in risk management. It’s therefore entirely reasonable to blame Rubin personally for the board’s decisions in 2004-5. But all Rubin can say is that he doesn’t "know what would have happened" if the decision had been different. Which is so far from any kind of apology for tens of billions of dollars in losses that it’s laughable.

Wonderfully, the WSJ article ends with this:

Asked about what he feels he’s accomplished, he responded: "It’s a funny way to think about it. I think I’ve been a very constructive part of the Citigroup environment. That has become particularly manifest since August ’07. I have been very involved."

Yeah, after paying someone $115 million, it’s a bit funny to ask what that person has achieved. Shouldn’t simply being very involved — in a company which has lost nearly all of its value — be enough?

In reality, Rubin failed even at the one job he was actually given, which was to be chairman of the executive committee of the board. As such, Rubin was instrumental in choosing two new CEOs for Citigroup. But in both cases, he found himself rushed into the choice, since he’d utterly failed to put in place any kind of well-thought-through succession plan. And right now, with Vikram Pandit’s job security looking rocky, it looks like he might end up making the same mistake a third time. The wreckage that is Rubin’s legacy at Citigroup hasn’t come to an end yet.