Michael Klein: Answers a question from the audience

The Global Credit Crisis: How Bad Will it Get? April 14, 2008

Michael Klein - Chairman and Co-Chief Executive Officer, Citi Markets and Banking

The subprime mortgage market is probably one of the worst examples of American hucksterism. The reason I call it American hucksterism, because we are subject to that kind of behavior from time to time. It's not very complimentary to us as a country, but it happens. One would think that institutions like Citibank, other banking institutions-I was a big supporter of Wall Street during the years I was in the legislature, Wall Street itself-that there would have been leaders of the financial community who would have identified that kind of hucksterist behavior as being dangerous to the system and would have put a stop to it. And it goes directly to Garrick's question. I never believed that a lot of government regulation is going to do us a lot of good. But sometimes it's going to happen because there is no exercise of responsibility in the business community. And it makes me sad to see that we have come to that point. I have enormous respect for your company, and New York City depends on the existence of large financial institutions. We wouldn't be what we are if you weren't here. But why was it that in this whole community, over this last two or three years, when that kind of behavior was fraught throughout the United States, why was it that nobody rose up and said, "We have to put a stop to it because we're going to crash and burn in the end"?

MICHAEL KLEIN:  Well, let me try to respond to that very thoughtful question. First and foremost, Citi, and I think, by the way, all of the financial institutions that would either be represented in this room or represented in the New York view, as a core, the understanding that banking is a trust business. People put their money in a bank because they trust it. It's confidence in your institution, it's confidence in what you create, and confidence in what you provide. It's the core banking. So anyone, and I don't want to single out Citi or any bank and I don't want to single out any particular leader, but I think everyone in the banking community recognizes that it's that degree of confidence and that degree of trust that is core and central. Clearly, clearly, in hindsight, the real estate market started to show its decline if one looks back now today not in July of 2007, not in January of 2007, not even in July of 2006, but at the beginning of 2006. How this disconnect occurred between that which was an underlying market and the elements of securities that somehow got attached to that market-I think history will tell us, as studies after studies are defined-but it clearly was an entire market that missed what was the value of underlying real estate and that which were securities attached to it. That's simply a fact, and that, by the way, is a fact across an entire industry of investors, intermediaries and the like. That is a fact. Citi and others, I think, fully recognize, on an individual basis through to management, through to all of the structures, that the business of both protecting client assets and risk are central, core to the business. And in fact, all of the changes are being put in place by the entire new management team, reflect both a focus on whether it's raising capital to be the strongest counterparty; putting in place risk systems to address that which was this market miss; putting in place obviously people, not just systems, but people and judgment, in order to do that. I would say to you that you've used terms that, of course are, very big and bold terms. "Hucksterism" and so forth. I wouldn't use those terms. I wouldn't use them at my organization, ever. I would never even remotely contemplate that anything that was done at a firm like mine was hucksterism. I don't see that. I see the organization as a fine, upstanding, strong, focused organization based on client trust in all respect. And also, by the way, focused on repairing what are systemic issues across the board, whether they be from regulation or otherwise.

Now, we've lived through market changes and we, as an organization, have generally led the response to market needs in order to make the system better. Whether that's post the Enron, WorldCom, whether it's any one of a number of things that have taken place. It's a core, central thesis with which our organization works because of our client trust. And that's how I expect we'll continue to operate-always. Because it's a core part of the business of trust.