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Familiar Trio at Heart of Citi Bailout
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Rubin called Paulson several times to make the case for intervention on behalf of Citigroup and the banking system as a whole, said two sources familiar with the conversations.
In an interview, Rubin explained his involvement by saying that, since arriving at Citigroup in 1999, he has had "a dual role of providing strategic advice or managerial advice and also to work with clients. And that's what I've done."
"I had operating responsibilities for 33 years. And I simply didn't want any operating responsibility, and that's been the case since I've been here," he said.
On Friday, Citigroup approached the Treasury and the Fed with a plan of its own, essentially asking the government to take on the risk of hundreds of billions of dollars in troubled assets on its books, but with little compensation for the government.
Over the weekend, there were marathon negotiations in which Citigroup officials spoke frequently with Paulson and, in place of Geithner, Fed governor Kevin M. Warsh. The four government agencies involved -- the Treasury, the Fed, the FDIC and the Office of the Comptroller of the Currency -- had to reach agreement on a deal, as did Citigroup's executives and board.
Geithner in the past directly negotiated with executives of firms receiving aid. But in this case, he left those responsibilities to others so that there would be no concern about a blurring of his two roles, as independent regulator with the New York Fed and future appointee in the Obama administration.
At the very minimum, the officials concluded, they could issue a statement of support from the government. But they worried that it would have proved dissatisfying to the market, taken as mere ineffectual words.
At the other extreme, they could have enacted a highly punitive complete bailout, like that of American International Group, requiring terms that strongly punish existing shareholders and give the government control of the Citigroup board, as well as firing the chief executive. They rejected that approach, preferring to try to give the existing Citigroup leadership team time to work through their problems.
The compromise was a set of tools that would allow Citigroup to remove some of the risk of continued losses on bad mortgage and commercial real estate loans on its books but with the government receiving compensation and with existing management in place to try to build the company's business in the long run.
