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PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
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MATTHEW W ABBOTT
ALLAN J ARFFA
ROBERT A ATKINS
JOHN F BAUGHMAN
LYNN B BAYARD
DANIEL J BELLER
CRAIG A BENSON*
MITCHELL L BERG
MARK S BERGMAN
BRUCE BIRENBOIM
H CHRISTOPHER BOEHNING
ANGELO BONVINO
HENK BRANDS
JAMES L BROCHIN
RICHARD J BRONSTEIN
DAVID W BROWN
SUSANNA M BUERGEL
PATRICK S CAMPBELL*
JEANETTE K CHAN
YVONNE Y F CHAN
LEWIS R CLAYTON
JAY COHEN
KELLEY A CORN ISH
CHARLES E DAVIDOW
DOUGLAS R DAVIS
THOMAS V DE LA BAST! DE Ill
ARIEL J DECKELBAUM
JAMES M DUBIN
ALICE BELISLE EATON
ANDREW J EHRLICH
LESLIE GORDON FAGEN
MARC FALCONE
ANDREW C FINCH
ROBERTO FINZI
PETER E FISCH
ROBERT C FLEDER
MARTIN FLUMENBAUM
ANDREW J FOLEY
HARRIS B FREIDUS
MANUEL S FREY
KENNETH A GALLO
MICHAEL E GERTZMAN
PAUL D GINSBERG
ROBERT D GOLDBAUM
ERIC S GOLDSTEIN
ERIC GOODISON
CHARLES H GOOGE JR
ANDREW G GORDON
BRUCE A GUTENPLAN
GAINES GWATHMEY Ill
ALAN S HALPERIN
CLAUDIA HAMMERMAN
GERARD E HARPER
BRIAN S HERMANN
ROBERT M HIRSH
MICHELE HIRSHMAN
JOYCE S HUANG
DAVIDS HUNTINGTON
MEREDITH J KANE
ROBERTA A KAPLAN
BRADS KARP
JOHN C KENNEDY
ALAN W KORNBERG
DANIEL J KRAMER
DAVID K LAKHDHIR
STEPHEN P LAMB*
JOHN E LANGE
DANIEL J LEFFELL
XIAOYU GREG LIU
JEFFREY 0 MAR ELL
JULIA TARVER MASON
MARCO V MASOTTI
EDWIN S MAYNARD
DAVID W MAYO
ELIZABETH R McCOLM
MARK F MENDELSOHN
TOBY S MYERSON
JOHN E NATHAN
CATHERINE NYARADY
ALEX YOUNG K OH
JOHN J 0 NEIL
KELLEY D PARKER
ROBERT P PARKER*
MARC E PERLMUTTER
MARK F POMERANTZ
VALERIE E RADWANER
CAREY R RAMOS
CARL L REISNER
WALTER G RICCIARDI
WALTER RIEMAN
RICHARD A ROSEN
ANDREW N ROSF.::NBERG
PETERJ ROTHENBERG
JACQUELINE P RUBIN
RAPHAEL M RUSSO
JEFFREY D SAFERSTEIN
JEFFREY B SAMUELS
DALE M SARRO
TERRY E SCHIMEK
KENNETH M SCHNEIDER
ROBERT B SCHUMER
JAMES H SCHWAB
STEPHEN J SHIMSHAK
DAVID R SICULAR
MOSES SILVERMAN
STEVEN SIMKIN
JOSEPH J SIMONS
MARILYN SOBEL
TARUN M STEWART
ERIC ALAN STONE
AIDAN SYNNOTT
ROBYN F TARNOFSKY
JUDITH R THOYER
DANIEL J TOAL
MARK A UNDERBERG
LIZA M VELAZQUEZ
LAWRENCE G WEE
THEODORE V WELLS JR
BETH A WILKINSON
STEVEN J WILLIAMS
LAWRENCE I WITDORCHIC
JORDAN E YARETT
KAYE N YOSHINO
TONG YU
TRACEY A ZACCONE
T ROBERT ZOCHOWSKl JR
*NOT ADMITTED TO THE NEW YORK BAR
December 14, 2010
By Federal Express
Gary J. Cohen, Esq.
General Counsel
Financial Crisis Inquiry Commission
1717 Pennsylvania Avenue, NW
Suite 800
Washington, DC 20006-4614
Financial Crisis fnqui1y Commisston ("FCJC" or "Commisswn")
Dear Gary:
We represent Citigroup Inc. ("Citi" or the "Company") in connection with
the Commission's inquiry. In your letters of December 6 and 7, 2010, you provide a
series of"quotes" that you indicate the Commission "may include or paraphrase" in its
final report. These quotes purport to be taken from the Commission's interviews of the
following current and former Citi employees: Murray Barnes, Lloyd Brown, David
Bushnell, Nestor Dominguez, Ellen Duke, Edward Kelly, Charles Prince, Robert Rubin,
and Sandy Weill. We write to identify certain "quotes" that do not accurately recount
what the relevant witness said or are otherwise misleadingly incomplete.
As the outset, we object to the use of any purported "quotes" from the
FCJC interview "summaries." As explained more fully in our December 14, 20 I 0 letter,
these summaries are unprofessional, sloppy and riddled with inaccuracies. Further, the
summaries are affirmatively misleading in another respect: They were drafted after the
PAUL, WEISS, RIFKIND, WHARTON S GARRISON LLP
Gary J. Cohen, Esq.
interviews, often in reliance only on notes, and artificially made to resemble transcripts,
which they are manifestly not. It appears that the Commission-widely reported to be
understaffed and short on resources (indeed, the Commission's staff often complained to
us about its Jack of staffing)-undertook the effort and expense to have notes its staff
took on laptop computers during these interviews transformed into interview summaries
mimicking the format of a transcript for the apparent purpose of suggesting that the
summaries should carry the weight, authority, and perceived accuracy of an actual
transcript. The purported "quotes" from Murray Barnes, Lloyd Brown, Nestor
1
Dominguez and Ellen Duke are taken from these FCIC interview summaries and should
not be included in the Commission's final report.
*
*
*
Murray Barnes. With respect to your December 6, 2010 letter to
Mr. Barnes, the two bullet points that you have identified do not accurately represent
what Mr. Barnes said during his March 2, 2010 interview with the Commission, and arc
misleadingly incomplete. First, and as previously noted, these bullet points arc based on
the FCIC's purported summary of Mr. Barnes's interview~ not a transcript. The usc of
quotation marks is misleading to the extent it suggests that the language reflects the
precise words used by Mr. Barnes during his interview.
The first bullet point reads:
"In hindsight," he observed, "rather than looking at [the
cheap collateral] as an opportunity, we should have
reassessed our assumptions and whether that was a sign of
the RMBS market showing strains." He admitted, "There
was an assumption or complacency that our past ability to
distribute risk would continue."
This purported summary of Mr. Barnes's statements mischaracterizes what Mr. Barnes
actually said during his interview. The bracketed language is particularly misleading.
According to the summary memorandum, Mr. Barnes was discussing widening spreads in
the marketplace and the impact of that development on investor interest. That is not
accurate. A more accurate summary of Mr. Barnes's statement would be: "Mr. Barnes
observed that, in hindsight, rather than looking at the widening spreads as an opportunity,
Citi should have reassessed its assumptions ... [etc.)"
We note that bullets three through eight in the December 6. 20 I 0 letter sent to Nestor Dominguez are
taken from the FC'IC interview summary of Mr. Dominguez's first interview, dated March 2. 20 I 0.
while bullets one and two are purportedly taken from the audio file of his second interview, dated
September 28, 2010.
PAUL, WEISS, RIFKIND, WHARTON S GARRISON LLP
Gary J. Cohen, Esq.
3
The second bullet point reads:
Barnes reflected: "Risk management tended to be managed
along business lines. In hindsight, it would have been
better to look across risk factors. . . . I was two offices
away from my colleague who covered the [securitization]
business, but I didn't understand the nuances of what was
happening to the underlying loans .... One massive regret
is that we didn't reach out to the consumer bank to get the
pulse of mortgage origination. An industry-wide problem
is that we didn't have the tools to understand the underlying
collateral."
This purported quotation of Mr. Barnes's statements is inconsistent with the FCIC's own
summary memorandum. Mr. Barnes did not use the tern1 "across risk factors." Instead,
according to the FCIC's summary memorandum, he stated, "[i]n hindsight, it would have
been better to look along risk factors." Additionally, the phrases "I didn't understand the
nuances of' and "what was happening to the underlying loans" are not connected in the
summary memorandum, contrary to the FCIC's purported bullet point excerpt.
Lloyd Brown. With respect to your December 6, 20 I 0 letter to
Mr. Brown, the bullet point inaccurately describes what Mr. Brown said in his February
25, 2010 interview, and is misleadingly incomplete. First, and as previously noted, the
bullet point is based on the FCIC's summary memorandum of Mr. Brown's interview
not a transcript. The use of quotation marks is misleading to the extent it suggests that
the language reflects the precise words used by Mr. Brown during his interview.
The bullet point reads:
Lloyd Brown of Citigroup explained to the FCIC that in the
end, most of the transactions fulfilling these agreements
"would be considered in the nonnal course of business."
This summary of Mr. Brown's interview is ambiguous as it refers to "the transactions"
and "these agreements" without any indication of what transactions or agreements arc
referenced. Thus, it is impossible to detennine whether this isolated excerpt from
Mr. Brown's interview mischaracterizes his testimony, is false, or would mislead the
reader.
David Bushnell. With respect to your December 6, 2010 letter to
Mr. Bushnell, one of the two bullet points inaccurately describes what Mr. Bushnell said
in his April 1, 2010 interview, and is misleadingly incomplete. This inaccuracy is
particularly egregious, given that an actual transcript exists of Mr. Bushnell's interview.
PAUL. WEISS, RIFKIND. WHARTON S GARRISON LLP
Gary J. Cohen, Esq.
4
The second bullet point reads:
The exact dates are not certain, but according to Chief Risk
Officer Bushnell, others in Citigroup 's senior management
also heard about the growing mark-to-market losses on
those super-senior tranches in "late August, early
September," well after Citigroup bought the commercial
paper backing the senior tranches of the COOs that BSAM
managed.
This excerpt of Mr. Bushnell's interview mischaracterizes Mr. Bushnell's actual
statements. Mr. Bushnell did not refer to "growing mark-to-market" losses on "supersenior tranches" in the period of"late August, early September" 2007. Instead, he
mentioned that time period as the first time super-senior positions on COOs were ever
discussed at a Business Heads meeting. Mr. Bushnell stated, recalling conversations
during this time period regarding the super-senior tranches, "we could have mark-tomarket volatility." Mr. Bushnell explicitly limited his discussion to the possibility of
volatility, not "growing losses." To the extent this excerpt suggests that Mr. Bushnell
and others were aware of growing losses during this time period, it is inaccurate and docs
not appropriately reflect Mr. Bushnell's interview.
Nestor Dominguez. With respect to your December 6, 2010 letter to
Mr. Dominguez, we adopt and incorporate by reference the objections made by
Mr. Dominguez's counsel, Linda lmes, in her Jetter to you, dated December 8, 2010.
In addition, the following four bullet points identified in your letter do not
accurately reflect what Mr. Dominguez said in his interviews with the Commission on
March 2 and September 28, 2010, and are misleadingly incomplete. First, and as
previously noted, the last three bullet points below are based on the FCIC's summary
memorandum of Mr. Dominguez's March 2 interview-not a transcript. The usc of
quotation marks is misleading to the extent it suggests that the language reflects the
precise words used by Mr. Dominguez during his interview.
The second bullet point reads:
"It was every salesman's job to sell structured products,"
Nestor Dominguez, co-head ofCitigroup's COO desk, told
the FCIC. "We spent a lot of effort to have people in place
to educate, to pitch structured products. It was a lot of
effort, about a hundred people. And I think our competitors
did the same."
Based on our review, this quote does not reflect what Mr. Dominguez actually said in his
interview. We believe the first sentence should read, "We had sales representatives in all
PAUL, WEISS, RIFKIN D. WHARTON 8 GARRISON LLP
Gary J. Cohen, Esq.
5
those [global] locations, and their jobs were to sell structured products." Additionally,
the last sentence should read, "And I presume our competitors did the same."
The third bullet point reads:
In 2005, Citi's COO desk was a tiny unit in the company's
investment banking am1, accounting for Jess than 1% of
revenues- "eight guys and a Bloomberg" tem1inal, in the
words of Nestor Dominguez, co-head ofthe desk.
Apart from Ms. lmes's objections, which we incorporate by reference, we cannot confirm
your source for the "less than I%" figure.
The sixth and seventh bullet points read:
When asked why few other American financial institutions
wrote liquidity puts on COOs, Dominguez pointed to the
size of Citibank's balance sheet.
"It only works if you are a big bank," he told the FCIC.
"It's a complicated product and it requires a Jot of
structuring and expertise. You needed to be a bank with a
strong balance sheet, access to collateral, and existing
relationships with collateral managers."
These quotes mischaracterize Mr. Dominguez's statements because they fail to include
the larger context in which the question was presented. The FCIC staff asked why "other
market participants"-not other American financial institutions-did not use liquidity
puts. In the context of this discussion, Mr. Dominguez explained clearly the global
context, noting that Societe Generate and BNP Paribas were significant market
participants that used liquidity puts.
Ellen Duke. With respect to your December 6, 2010 letter to Ms. Duke,
the bullet point does not accurately represent what Ms. Duke said in her March 18, 20 I 0
interview with the Commission, and is misleadingly incomplete. First, and as previously
noted, the bullet point is based on the FCIC's summary memorandum of Ms. Duke's
interview-not a transcript. The use of quotation marks is misleading to the extent it
suggests that the language reflects the precise words used by Ms. Duke during her
interview.
The first bullet point reads:
Duke recalled for the FCIC a risk meeting in the fall of
2007 during which the contradictory strategies were
PAUL. WEISS, RIFKIN D. WHARTON S GARRISON LLP
Gary J. Cohen, Esq.
discussed, a full six months after the desks went their
opposing ways. Even so, Duke was not particularly
concerned when the issue came up, because she and her
risk team assumed incorrectly that the two units had
different quality collateral and thus conducted their
businesses differently. '"We were seduced by structuring
and failed to look at the underlying collateral," she said.
This summary of Ms. Duke's interview mischaracterizes Ms. Duke's actual remarks in
several respects. First, as reflected in the FCIC's summary memorandum, Ms. Duke's
remarks were not made with reference to any particular meeting in the fall of 2007.
Instead, Ms. Duke recalled generally becoming aware in September 2007 that Global
Securitized Markets was de-levering subprime and Global Structured Credit Products was
"doing more." Second, the quote attributed to Ms. Duke is inaccurate insofar as it
suggests that Ms. Duke was referring to herself and the individuals on the risk team that
she managed. Neither the summary memorandum nor our contemporaneous notes of the
interview supports the inclusion of the word "we" at the beginning of the quoted
language. Nor does the context in which the discussion was based support an inference
that Ms. Duke was referring to her risk team, as the bullet point misleadingly suggests.
Rather, according to contemporaneous notes, Ms. Duke's comment referred more
generally to the banking industry's and other market participants' reliance on the
subordination achieved through the securitization process and the assumption that the
underlying collateral was not highly correlated.
Edward Kelly. With respect to your December 7, 2010 letter to Mr. Kelly,
two of the four bullet points do not accurately represent what Mr. Kelly said in his
interview with the Commission on March 3, 2010, and are misleadingly incomplete. The
misleading nature ofthe Commission's selective quotations is particularly egregious,
given that an audio recording exists of Mr. Kelly's interview.
The first bullet point reads:
Future Citigroup CFO Edward "Ned" Kelly III told the
FCIC, "Having agreed to do the deal was a recognition on
our part that we needed it. And if we needed it and didn't
get it, what did that imply for the strength of the firm going
forward?"
This cropped quote mischaracterizes Mr. Kelly's statements because it improperly
excludes his introductory caution that he was expressing what he believed to have been
the marketplace's reaction. Mr. Kelly explicitly stated that this view is neither his nor
Citi's, but rather his impression of the market's view at the time. As the audio recording
of Mr. Kelly's interview clearly reflects, the full quote is as follows:
PAUL, WEISS, RIFKIND, WHARTON 8 GARRISON LLP
Gary J. Cohen, Esq.
7
"After we announced the Wachovia deal, ironically I think
there was a perception on the part of the market that we had
now conceded that we needed a larger presence in the
United States, that there was a value to deposit funding that
we had been willing to forgo for some time, but having
agreed to do the deal was a recognition on our part that we
needed it."
Your inclusion of only the last part of Mr. Kelly's statement misleadingly implies that
Mr. Kelly was expressing a concem that he or Citi held.
The fourth bullet point reads:
Citigroup's Kelly, who helped negotiate the deal, told the
FCIC, "There was not a huge amount of science in coming
to that [$306 billion] number." The deal was structured to
"give the market comfor1 that the catastrophic risk has been
taken offthe table."
This selection misquotes Mr. Kelly and again fails to provide the appropriate context.
Mr. Kelly did not use the term "catastrophic" risk, but instead stated, "in part [we] were
driven by how much would be enough to give the market comfort that we had in fact
eliminated that tail risk." In addition, this excerpt oversimplifies Mr. Kelly's point. As
the audio recording of Mr. Kelly's interview reflects, Mr. Kelly expressly indicated that
there were several considerations in coming to the final number:
"We had two views ... the size actually was very similar to
Wachovia ... [and] we went through asset categories that
we thought might fit, backed into that number, and in part
were driven by how much would be enough to give the
market comfort that we had in fact eliminated that tail
risk." Mr. Kelly later added, "but not so large as to be
impractical."
The cropped quotation implies that the number was an arbitrary figure chosen to calm the
market's fears, when in fact Mr. Kelly's statements made clear that the number was based
on several analytic considerations.
Charles Prince. With respect to your December 7, 2010 letter to
Mr. Prince, two of the ten bullet points do not accurately represent what Mr. Prince said
in his interview with the Commission on March 17, 2010, and are misleadingly
incomplete. These inaccuracies are particularly egregious, given that an actual transcript
exists of Mr. Prince's interview.
PAUL. WEISS, RIFKIN D. WHARTON S GARRISON LLP
Gary J. Cohen, Esq.
The first bullet point reads:
"Securitization could be seen as a factory line," Citigroup's
ex-CEO Chuck Prince told the FCIC. "You needed raw
material to put in the front end of that. ... As more and
more and more of these subprime mortgages were created
as raw material for the securitization process, not
surprisingly in hindsight, more and more of it was of lower
and lower quality. And at the end of that process, the raw
material going into it was actually bad quality, it was toxic
quality, and that is what ended up coming out the other end
of the pipeline. Wall Street obviously participated in that
flow of activity."
This quote ignores the broader regulatory context Mr. Prince emphasi?ed. Mr. Prince
stressed that this "factory line" was only realized through the "lack of adequate regulation
of the origination of mortgages." By extracting the quote from this context, Mr. Prince's
statement is transfom1ed from a nuanced observation about the combined roles of market
regulators and participants into one that places a far greater emphasis on the activities of
"Wall Street" than the transcript, fairly read, permits.
The seventh bullet point reads:
The context was a discussion of the upcoming third-quarter
results. As reported, this is also when Chaim1an and CEO
Prince first heard about the possible losses from the supersenior COO trancl1es: "[l]t wasn't presented at the time in
a startling fashion ... [but] then it got bigger and bigger
and bigger, obviously, over the next 30 days."
This bullet point misstates Mr. Prince's statement in two respects. First, as the transcript
makes clear, Mr. Prince recalled that the discussion referenced was part of a weekly
"Business Heads meeting," not- --as this excerpt suggests- -a discussion of upcoming
third-quarter results. In addition, Mr. Prince expressly stated that he could not precisely
reconstruct the conversations he may have had regarding CDO super-senior tranches in
September 2007. Second, the discussion Mr. Prince described was not about "possible
losses," but, as Mr. Prince expressly testified, about the Company's "open positions." In
fact, Mr. Prince expressly stated that "at the time this first came to my attention in the
September time frame, even at that point people believed the super seniors would not
have any losses." As a result, the use of this quote to describe a purported discussion
conceming third-quarter estimated losses is grossly misleading.
Robert Rubin. With respect to your December 7, 2010 letter to Mr.
Rubin, the second of two bullet points takes what Mr. Rubin said in his interview with the
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
Gary J. Cohen, Esq.
Commission on March II, 2010 out ofthe context ofthe discussion, and is misleadingly
incomplete. This is particularly egregious, given that an actual transcript exists of Mr.
Rubin's interview.
The second bullet point reads:
A second meeting was held September 12-- after Rubin
was back in the country --and the focus shifted to the
COOs. This meeting marked the first time Rubin recalled
hearing of the super-senior and liquidity put exposure. He
later commented, "As far as I was concemed they were all
one thing, because ifthere was a put back to Citi under any
circumstance, however remote that circumstance might be,
you hadn't fully disposed of the risk."
As Mr. Rubin made clear in his interview, Citi reasonably held the view that the supersenior and liquidity put exposure- ยท-which were rated above-AAA----had only de minimis
risk. Removing Mr. Rubin's comment from this larger context of the dialogue he
described within the Company is inappropriate and misleading.
Sandy Weill. With respect to your December 6, 2010 letter to Mr. WeilL
the bullet point is not appropriate for inclusion in the Commission's final report.
The bullet point reads:
"I think if you look at the results ofwhat happened on
Wall Street, it became, 'Well, this one's doing it, so how
can I not do it, if I don't do it, then the people arc going to
leave my place and go someplace else.' ... [R )isk became
less of an important function in a broad base of companies,
I would guess."
As Mr. Weill made clear, his comment was based purely on conjecture, and was made
with the benefit ofhindsight~Mr. Weill himself expressly stated that he was guessing
when making the comment. We respectfully submit that the Commission's report should
not rely on after-the-fact speculation~or guesses~by Citi's fom1er-CEO regarding
events that transpired years after he departed the Company.
*
*
*
PAUL, WEISS, RIFKIN D. WHARTON S GARRISON LLP
Gary J. Cohen, Esq.
10
On behalf of Citi, we vigorously object to the inclusion in your public
report of unverified, inaccurate, or misleading information or quotes, as identified above.
We appreciate your attention to these matters and look forward to continuing our
discussion about these matters with you.
Respectfully submitted,
;61/~. ~/A.l.K.
BradS. Karp
@FedFRASER