Crisis management

Felix Salmon

Felix Salmon talks to New York’s most senior commercial banker, Citibank chairman Bill Rhodes, about the origins of the current crisis – and profiles two other major players, Jamie Dimon of JPMorgan Chase and Ken Lewis of Bank of America

FS Where was leadership, when we needed it?
WR When you’re in a crisis, leadership counts. The clock is running against you. I don’t want to cite individual cases, but of those I’m familiar with, the seniors thought there was a lot of time when in fact there wasn’t. In a crisis you need to act rationally and swiftly.

But leadership isn’t only the purview of private sector; it’s also needed in the public sector, particularly in a world economic crisis. We were very lucky in the LDC [Less Developed Country] debt crisis because we had Paul Volcker leading and coordinating the central banks and we had Jacques de la Rosière leading the IMF, and the two of them tapped me, the young guy that I was in those days, to help coordinate the banks.

We supposedly learned a lot of lessons from the LDC debt crisis, the Asian financial crisis, LTCM and Russia, and before that, the real estate problems of the early Nineties here and in the UK – but apparently we hadn’t.

There were lessons learned in both the Latin American debt crisis and the Asian financial crisis. Why didn’t policymakers think to look at these, instead of relearning everything again? Why didn’t anyone bother looking at some of our experiences? That’s part of the problem.

But some people just didn’t want to see it. They were convinced that we had gotten over these problems after the tech bubble, and this surge in leverage and liquidity was just going to perpetuate itself.

FS So where does this leave Citigroup?
WR In November last year, we started to raise capital. We raised $50 billion, more than anybody else, when others did not. We were building walls of liquidity, because in cases like this, liquidity and capital are king, as are deposits. You need a deposit base. That’s your source of liquidity; in our case we hold $800 billion.

Another thing in our favour is that we have the largest global presence of any financial institution. That’s very important. It gives us a diverse source of income.

The key is to be able to execute. John Reed, my colleagues and I were able to do this in the early Nineties, and we came out of it quicker than anyone thought possible, and quicker than other banks at the time. Reed and the board allowed me to open up Eastern Europe during that period which is one of our big earners now.

On 14 October, Citigroup (Citibank’s parent) was one of nine US banks to receive preferred-share capital injections of $25 billion each from the US Treasury. Citi said it believed the move would ‘help cement confidence in the US financial system, reinvigorate lending activity and stabilise the global economy’.