The downfall of Citigroup has taken place over a long time and involved many people, but attention is now focussing on the role of Robert Rubin, the former US Treasury Secretary, who is a Citi director and senior adviser and was briefly its chairman.

Mr Rubin has had an influential role at Citi since being brought on board by Sandy Weill in 1999 but has not been an executive. Having formerly been co-chairman of Goldman Sachs, he preferred to exercise influence behind the scenes.

He described his role thus when I interviewed him last year:

“People come by and want to talk about things. Some are unhappy with their jobs, others want to talk to me about how to approach a client or a government. My entire staff is two secretaries. That’s who reports to me.”

Now, of course, a big loss has been disclosed at Citi and various people are asking what Mr Rubin had to do with it. That was among the subjects covered in a long article in The New York Times on Saturday. It found that Mr Rubin and Chuck Prince, Citi’s former chairman and chief executive, played “pivotal roles” in the bank’s disastrous push into underwriting and trading collateralised debt obligations.

The man in charge of this effort was Tommy Maheras, the former head of capital markets at Citi, who lost his job a year ago, shortly before Mr Prince resigned. Mr Rubin was then influential in selecting Vikram Pandit to succeed Mr Prince.

In fact, there was already evidence that Mr Rubin trusted Mr Maheras to match the skilled risk-taking in which Goldman specialised. Take a Bloomberg article written in September 2006 about Mr Maheras by Justin Baer, who now works for the FT:

Lifting revenue, at least in capital markets, sometimes means taking more chances. That’s where Maheras comes in. An ex-Salomon Brothers trader known to friends and colleagues as Tommy, Maheras is no stranger to risk. “You have to stick your neck out in trading,” he says. “And in management.”

Maheras has an instinct for both, says ex-US Treasury Secretary Robert Rubin, now chairman of Citigroup’s executive committee. “When Jon Corzine was running all of fixed income at Goldman, he would walk the trading room and just know this stuff,” says Rubin, who preceded Corzine, now governor of New Jersey, as Goldman Sachs’ co-chairman. “He had it in his bones. He had it in his fingers. And so does Tommy.”

It is not surprising that Mr Rubin placed his faith in Mr Maheras since the latter had long experience at Salomon Brothers, which was the most successful bond trading house on Wall Street before, following the Citigroup takeover in 1997, those activities were curtailed.

Mr Rubin was himself a storied arbitrage trader at Goldman, so he was probably inclined to think that a well-run fixed income franchise that risked some of its own capital could be a good money-spinner. But Citi’s efforts under Mr Maheras ran into spectacular trouble.

Mr Rubin was not directly responsible for this, as he told The New York Times:

“There is no way you would know what was going on with a risk book unless you’re directly involved with the trading arena. We had highly experienced, highly qualified people running the operation.”

On the other hand, he was not a mile away.

November 24, 2008 4:43am in Finance | Comment