In turning to Robert E. Rubin to be its new chairman, Citigroup Inc. is betting that his decades of experience handling crises from Wall Street to Washington will get it through its own harrowing predicament.
The biggest U.S. bank by assets yesterday warned of as much as $11 billion of additional writedowns on subprime mortgages and related securities and announced the resignation of Chairman and Chief Executive Officer Charles Prince. Now Rubin and Sir Win Bischoff, the interim CEO, must win back investor confidence in the wake of a 32 percent plunge in Citigroup's share price this year.
For Rubin, putting out fires has become something of a specialty. As vice chairman of Goldman, Sachs & Co., he steered the firm through an insider trading scandal in 1987. As President Bill Clinton's Treasury secretary in 1995, he led a financial rescue of Mexico that prevented the country from defaulting.
"He's slipped more punches than Muhammad Ali," said Robert Stovall, a five-decade veteran of Wall Street who is now global strategist at Wood Asset Management Inc. in Sarasota, Fla. "He's got a pretty good reputation worldwide and has a knack for handling crises."
"What he does is give the bank breathing room to carry out an orderly search for a new CEO," said Hugh Johnson, chairman of Johnson Illington in Albany, N.Y., which manages $720 million, including shares of Citigroup, and advises on almost $900 million more.
After leaving the Treasury in 1999, Rubin might have had his pick of top jobs at Wall Street firms. Instead, he opted to join Citigroup as chairman of its executive committee, a role that he has described as a consigliere to executives including Prince and his predecessor Sanford Weill.
That association leads some observers to question whether he is the right man for the job now. "Even if he wasn't directly involved with the mess, he also hasn't criticized anything publicly, so he's guilty by association," said Charles Geisst, finance professor at Manhattan College in Riverdale, N.Y., and author of "100 Years of Wall Street."
Rubin, 69, served as Treasury secretary for five years. During that time, he was credited with helping achieve the first U.S. budget surplus in a generation, saving Mexico from economic ruin and holding together the global economy through the currency crises of 1997 and 1998.
In his 2003 book, entitled "In an Uncertain World," Rubin describes his approach to decisionmaking as "probabilistic."
According to this philosophy, nothing is ever a sure thing. Armed with a yellow pad, Rubin says he attacks problems by toting up the pluses and minuses of competing considerations and assigning odds and import to each.
It's an approach that has served him well, starting with his early days as an arbitrage trader at Goldman, which he joined in 1966 after deciding he wasn't cut out to be a lawyer, even with a law degree from Yale University. Rubin quickly moved up the management ranks of Goldman, ultimately ending up as co-chairman from 1990 to 1992.
In tackling the crisis at Citigroup, Rubin is likely to employ some of the lessons he learned dealing with the insider trading scandal at Goldman that saw one of his friends and proteges at the firm, Robert Freeman, end up in prison.
Those include, according to his book: not allowing the turmoil to interfere with the rest of the business; reassuring clients and employees about the outlook; and avoiding paranoia.
He describes in his book having to go to Clinton on his first day as secretary to seek backing for a plan to head off a Mexican debt default with loans from the United States, other industrial nations and the International Monetary Fund.
To get around congressional opposition, he tapped a seldom- used Treasury fund for the purchase and sale of foreign currencies. The loan worked as Mexico righted its economy and ended up repaying the U.S. early, with interest.
He's retained ties to Washington since leaving public service, raising money for Democrats, advising candidates and serving as a bridge to the securities industry. In August, he called Federal Reserve Chairman Ben S. Bernanke as credit costs surged.
In an interview yesterday, Rubin said he didn't know how long he would serve as chairman.
He hasn't stayed away from the controversy completely at Citigroup. In 2001, he made a call to Peter Fisher, then undersecretary of the Treasury. He asked whether the government would ask the credit-rating companies to hold off downgrading Enron Corp.'s debt. Citigroup had lent money to Enron, the energy company which ultimately went bankrupt.
Fisher told Rubin it was a bad idea during their phone conversation and didn't intervene with the ratings firms. A bipartisan congressional investigation concluded later that nothing illegal had happened and didn't reprimand Rubin.
"He seems to have the magic touch and the credibility with the market and the government that's needed for somebody at the helm of the nation's largest bank," said Peter Sorrentino, who helps manage $12 billion, including some Citigroup shares, at Huntington Asset Management in Cincinnati.
With reporting by Bradley Keoun in New York.