A day after New Year’s in 2008, Citigroup announced that one of its most troubled units had a new chief operating officer: Jack Lew.
In a sea of Wall Street traders and hedge fund managers, Lew stood out. He was a career government bureaucrat who had joined Citigroup 18 months earlier hoping to gain experience in the business world. Now he was getting more than he could have imagined.
President Obama joked about Jack Lew’s illegible signature after he announced his nomination of the current White House chief of staff for Treasury secretary.
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In the following months, as the entire bank teetered, Lew’s group would cope with massive losses, lawsuits from angry investors and probes from government officials. The group, called Citigroup Alternative Investments, had been overseeing one of the most toxic parts of the bank’s business, known as structured investment vehicles — unregulated entities that threatened to send Citigroup, as well as the broader financial system, over the edge.
By the fall, Citigroup turned to taxpayers for a massive bailout. In the end, the bank received more government assistance than any other company, totaling $476.2 billion in cash and guarantees, according to the Congressional Oversight Panel.
Lew, President Obama’s choice to be the next Treasury secretary, is set to face questions about his work at Citigroup at his upcoming Senate confirmation hearing. Although Democrats expect Lew to be confirmed quickly, some Republicans have complained about his tough approach in past budget battles.
His time at Citigroup is an x factor. Not much is known about his role at the bank during a pivotal moment for the U.S. financial system.
Sen. Charles E. Grassley (R-Iowa) said he intends to ask Lew about a $940,000 bonus he got from Citigroup just before the bank received government assistance.
“The Treasury secretary can’t owe anyone on Wall Street any favors,” Grassley said in a statement. “He has to be independent from special interests and put taxpayers first.”
Lew has not said much about Citigroup. The White House did not respond to repeated requests to answer questions, referring inquiries to the bank. Lew, currently Obama’s chief of staff, declined to comment for this article.
In his confirmation hearings after he was nominated to head the Office of Management and Budget in 2010, Lew said that he was only a manager at the bank, not someone enmeshed in Citigroup’s trades or financial strategy — a picture confirmed by former colleagues at Citigroup. And the seeds of Citigroup’s problems were planted long before Lew arrived there.
But Lew’s years at Citigroup could become especially relevant if he is confirmed as Treasury secretary, as that job now shoulders a new level of responsibility overseeing the country’s biggest banks.
As Treasury secretary, Lew would head up a council of regulators surveying the financial system for excessive risk. And he would have a hand in shaping a controversial new regulation, known as the Volcker rule, which seeks to ban banks from gambling with their own money — exactly the kind of activities that were part of Lew’s old business unit at Citigroup.
“His résumé isn’t sterling from this perspective,” said Mark Williams, a lecturer on finance at Boston University and a former Federal Reserve bank examiner. “Citigroup was one of the bad firms on Wall Street.”
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