Um, the business-press is talking to itself again.

Coverage of this morning’s forced resignation of Charles Prince, Citigroup’s chairman and chief executive, reads like journalists writing for each other and their sources

All sorts of reasons are offered for Prince’s ouster — his poor operational skills, his personality, the fact that he’s not Sanford Weill, the Great Architect and Helmsman himself, who retired in late 2003. All theories are correct, I’m sure. But I would call them hyper-sophisticated.

The Wall Street Journal blames Prince’s inability to unite Citigroup’s diverse businesses in the story headlined: “In Citi Shake-Up, Broader Troubles:”

Charles Prince couldn’t unite the pieces of Citigroup Inc.’s sprawling empire, and his successor will face many of the same challenges that have stymied the outgoing CEO….
Citi’s core problem — and Mr. Prince’s core failure — isn’t just the recent market losses. It’s also the conspicuous lack of successes elsewhere to compensate for them. That potential was the big strategic idea behind the “universal bank model” created by Mr. Weill a decade ago. The universal bank could generate more revenue from clients by offering a slew of related financial services. Meanwhile, the collection of varied businesses is supposed to provide a cushion, with downturns in some areas balanced by upturns in others.

The New York Times, in
Bankers’ Lesson From Mortgage Mess: Sell, Don’t Hold,” says the problem is that banks didn’t offload the crap, um, I mean, the subprime-based securities they created fast enough, but instead, if you can believe it, actually held on to them. Crazy.


The trouble stems from the banks’ significant involvement in collateralized debt obligations, which raise money by selling bonds to investors and using the proceeds to buy other bonds, many of which are backed by subprime home loans.

Or, alternatively, on second thought and upon further review, the Times concurs that problem is the vastness of Citi’s empire, under: “Fixing Citigroup Will Test Rubin

[Investors] main complaint has been that Citigroup is trying to be too many things — a commercial bank, a brokerage firm, an investment bank, a credit card company. Mr. Weill promoted the idea that the different businesses would make the others stronger, by offering one-stop financial shopping to customers.

But its operations in more than 100 countries have spread management thin and made it difficult to keep tabs on risks. Its technology systems are outdated. Its cowboy culture and internal politics have proven difficult to rein in, and its sheer size makes it hard to move the profit needle.

Bloomberg agrees that Prince screwed up Weill’s “profit machine.”

That’s here: “Weill’s Profit Machine Breaks Down on Citi Writedowns (Update4)

Nov. 5 (Bloomberg) — Citigroup Inc., the profit engine built by Sanford “Sandy” Weill, has seized up.

`Chuck Prince took over with all the tools,’ said Peter Sorrentino, who helps oversee $13 billion at Cincinnati-based Huntington Asset Management, including Citigroup shares. `Citigroup hasn’t delivered. They didn’t knock it out of the park when things were good and now they find themselves staring at the barrel of some of the more onerous losses that this whole episode will deal out.’


The Financial Times, which reports that even Weill came to regret his choice of successor, says the problem was that Prince lacked Weill’s skills, making the “Credit meltdown the final straw for executives

He lacked Mr Weill’s passion and ability to motivate, say former executives who complained that he did not allow business heads to run their own operations, did not trust his colleagues and failed to take advice.

The outlets are too close to the story, I think, and a larger point is lost.

The root of Citigroup’s problems—let’s remember—is that the mega-bank and its brethren in the financial system, from former industry darlings Countrywide Financial and Ameriquest, to Citigroup’s own CitiFinancial, all the way to Lehman Brothers, Bear Stearns and back to Citigroup again—made too many loans to financially vulnerable borrowers, then turned those bad loans into bad securities.

Who says? Prince himself, as the Journal reports:

It is my judgment that given the size of the recent losses in our mortgage-backed-securities business, the only honorable course for me to take as chief executive officer is to step down,’ Mr. Prince said in a statement yesterday.

The paper further notes:

The company said yesterday it formed a new unit to focus solely on managing its exposure to subprime-mortgage securities.

The truth is Citigroup was built on a slurry subprime foundation, just as Michael Hudson reported in Southern Exposure four years ago. Citigroup was both a huge subprime player, and subprime was a huge part of Citigroup.


As Hudson wrote:

Citigroup has established itself as perhaps the most powerful player in the subprime market by swallowing competitors and employing its vast capital resources and its name-brand respectability…
The web of subprime is woven throughout Citigroup. Sandy Weill’s company has refashioned itself into a full-service subprime enterprise—one that makes high-cost loans and sells securities backed by the income streams from all these transactions. In 2000, one study calculated, nearly three of every four mortgages originated within Citigroup’s lending empire were made by one of its higher-interest subprime affiliates—nearly 180,000 loans out of a total of 240,000-plus mortgages for the year.

The fact is, Citigroup made subprime lending a cornerstone of its operations, betting investors’ capital on the market’s most vulnerable borrowers. And the rest of Wall Street followed its example.

This was known before Weill retired. If investors, policymakers and business-press readers want context, they should be reading a four-year-old edition of a 3,000-circulation magazine.

Listen, I don’t fault financial publications for attempting to go beyond the obvious, for trying to offer deeper and more sophisticated analysis than competors’ versions.

Robin Sidel, for instance, offers great insider detail that readers can find only in the Journal:

Defiant Citigroup bond traders still cling to their corporate roots, sometimes answering phones “Salomon” even though Citigroup a few years ago dropped the Salomon Brothers name it had acquired and instructed employees not to use it. The bank’s retail network isn’t hooked into other parts of the company — meaning branch tellers can’t see whether a customer in front of them has been preapproved for a credit card so they can offer it. Until recently, capital markets and consumer businesses within the bank’s European operations duplicated basic office functions because each had its own legal and human-resources staffs.

But you can’t forget the obvious.

I know it’s easy to second-guess reporting, especially reporting crashed out on deadline over a weekend.

Still, I’m coming to believe that Citigroup and the general subprime scandal—and that’s what it is, a scandal—represents as much a crisis for business journalism as it is for banks. But in crisis, there’s opportunity.

So, here’s an idea: business publications have in recent years come to see themselves as champions of the shareholder. And that’s good. But I would say, consider pulling the camera back even further.

It is now beyond question that Weill’s company, his profit machine, was built to some material degree on bad practices. Its investment bankers were implicated in the collapse of both Enron and WorldCom; its stock research operation gave the world Jack Grubman; its private banking arm violated Japanese anti-money-laundering rules, etc.

However, like subprime lending, these practices brought spectacular results for shareholders—but only in the short term.

In the longer term, business-press readers’ interests as investors coincide with their interests as citizens. Business publications should question corporate practices beyond their implications for shareholders.

Challenge the assumptions. Do the investigations. In the end, investors will do well by journalists doing good.

Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014).

Follow Dean on Twitter: @deanstarkman.