For Citigroup’s New Head, Focus Is Subprime Tangle

Until Sunday, Robert E. Rubin collected over $18 million a year as Wall Streets ultimate hands-off executive. On Monday, he had to roll up his sleeves.

Mr. Rubin, who was named Citigroups chairman after the departure of Charles O. Prince III, has moved quickly to deal with the turmoil that has engulfed the banking giant. He expressed the boards commitment to Citigroups dividend, its existing strategy, and to tackling a raft of problems related to the subprime mortgage mess.

Yesterday, the bank established a subprime portfolio unit to help manage exposure to its riskiest securities, which have had write-downs so far of $10 billion to $13 billion. To run the unit, the bank named Richard A. Stuckey Jr., who in 1998 helped it unwind the bad bets of the Long-Term Capital Management hedge fund.

On Monday, Mr. Rubin tried to reassure investors even as credit agencies lowered Citigroups rating amid speculation of more losses. Later, he and three other directors met to discuss finding a successor to Mr. Prince, who was chairman and chief executive. Meanwhile, the bank was hit with its first shareholder lawsuit, just as Mr. Rubin finished his first series of senior management meetings.

For now, the future of Citigroup rests with Mr. Rubin, who has had a celebrated career running Goldman Sachs and the Treasury Department. He is lending his credibility at a time when Citigroup is facing ballooning losses and a lack of trust.

But Mr. Rubin is also a controversial choice. He has been a top adviser to Mr. Prince and has helped shape the banks strategy as an influential director. In light of the recent problems, Wall Street analysts and bankers are asking several questions: What was Mr. Rubins role in steering the bank? Why isnt the board holding him accountable?

You would think that this is disturbing with regard to Rubins legacy, said Douglas Kass, a hedge fund investor at Seabreeze Partners Management in Palm Beach, Fla. Rubin is so smart that it surprises me that he never recognized the materiality of the problems.

Or perhaps, Mr. Kass said, the bank didnt know how severe the problems would be.

Mr. Rubin declined to comment for this article.

The next few months will be crucial. Analysts say Mr. Rubin must demonstrate his commitment to the job and make sure the bank has no new earnings surprises. Citigroup, meanwhile, needs to put its balance sheet in order and reduce its inventory of bad mortgage-related securities. It needs to build a bigger capital cushion, which may require it to sell some assets. And it must win back the confidence of investors.

At Citigroup, Mr. Rubin has always been a reluctant chairman of the executive committee and even more resistant to being a manager. He has said publicly since he came to Citigroup in 1999 that he had no interest in running the bank, and he has had his contract written accordingly.

As the chairman of the banks executive committee, Mr. Rubin received more than $150 million over the last eight years.

He spent his days meeting with clients and using his large Rolodex of contacts to bring in business or smooth relations with government and business leaders, according to people with knowledge of his duties who asked not to be identified because they were not authorized to speak for the record. His other role was to serve as Mr. Princes sounding board and advocate.

But the banks performance has come under fire. Its shares price has barely budged since Mr. Prince took over in October 2003, and it has dropped more than 20 percent in the wake of the companys losses.

In all of that, Mr. Rubin has largely stayed above the fray. Part of this is his humble, self-effacing style. Another reason is that he offers advice but puts the final call in the hands of Citigroups business leaders. Although he has not been making day-to-day decisions, he has been more involved in guiding the bank than many had thought.

Under Sanford I. Weill, Mr. Rubin served as a sounding board. But when Mr. Prince took over, Mr. Rubins advice was sought less often, according to a person close to the situation. Only in the last year or so did Mr. Prince routinely seek Mr. Rubins counsel.

Among Mr. Rubins tasks has been to help lure top executives, and Mr. Princes choice of Gary L. Crittenden as his finance chief was widely admired. Other hires were more controversial. Mr. Rubin played a role in attracting Vikram S. Pandit, a former Morgan Stanley investment banker who has taken over Citigroups investment banking unit, a person briefed on the situation said. But many suggested that $800 million was too much for Old Lane Partners, the hedge fund the bank bought to bring Mr. Pandit to Citigroup.

Senior executives have also questioned another selection strongly backed by Mr. Rubin: that of Lewis B. Kaden, a lawyer with no operational experience, as chief administrative officer and vice chairman. He was recently stripped of one title, becoming simply a vice chairman.

Mr. Kaden did not return calls for comment.

Mr. Rubin also played a role in encouraging Mr. Prince to take on more trading risk for Citigroups investment bank if there were promising opportunities, people close to the situation said. In practice, the unit was not equipped to handle big risks, and fumbled the execution.

Of course, Mr. Rubin offered views that often clashed with those of Mr. Prince. Mr. Rubin has been skeptical about whether Citigroup should continue in both the domestic retail and credit card businesses, given their slower underlying growth prospects, a person who has worked with him said. Mr. Prince thought the units were crucial.

Since Monday, Mr. Rubin and Winfried F. W. Bischoff, Citigroups interim chief executive, have been reaching out to senior managers. Yesterday, the two met with executives from the global consumer operations to reassure them about the leaders commitment. In that and other meetings, the two have made employee morale and retention a priority, including making sure top performers receive sufficient bonuses, a person briefed on the situation said.

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