And even if you don’t care about poor, dumb, rural and inner-city marks, er, borrowers—I mean, who does?—look what’s happening to something important: Citi earnings. They’re cratering as its subprime operation unravels.
Yesterday, The Financial Times and others play Citi’s financial problems in the most recent quarter as a reflection on the performance of Weill’s successor, Chuck Prince, and calls for his ouster by an analyst. That’s fair, but in the end, Prince didn’t make this subprime machine nor most of those loans now going bad. Weill did.
Given what we know from Hudson, the coverage of Citi’s financial troubles seems out of it.
Thankfully, there is always The Wall Street Journal editorial page to provide comic relief. It applauds Citi and UBS for writing down almost $10 billion in bad mortgage loans combined. That’s $10 billion in a single quarter.
Oh, yes. Bravo!
In fairness, though, to the WSJ editorialists and in seriousness: Given the weak Citigroup coverage, how would they know how Citi got into this mess and exactly what kind of borrowers are taken down in this mudslide?
Listen, I don’t mean to say there hasn’t been fine reporting on Citigroup, or that the subprime story is the only Citi story worth pursuing. Roger Lowenstein wrote a wonderfully intimate 8,000-word profile for The New York Times Magazine in 2000 [1], chronicling Weill’s rise from modest Brooklyn roots, his painful exit from American Express, a stormy relationship with protégé-turned-rival Jamie Dimon, and unlikely triumph in taking over and vastly expanding Citi, making it for a while the world’s most profitable company. Fortune’s Carol Loomis and the Journal’s Monica Langley have done much good work on Weill’s driven personality and why he is not the world’s nicest boss.[2], [3]
Much was written, albeit after the fact, about Weill’s central role in creating and taking advantage of conflicts of interest that led to a fraudulent stock-research scandal, his relationship to fallen star analyst Jack Grubman, as well as on Citigroup’s pivotal role in the crashes of Enron and other scandals.
The Wall Street Journal also did interesting work framing the Weill-Dimon rivalry as a battle over the consumer, as opposed to the commercial, market. [4] But the story merely waves at a serious accusation of predatory practices. That’s here:
The trend has big risks for banks and their customers. The banking behemoths have gained a reputation for ingenuity at generating growth by tinkering with consumer interest rates and tacking on myriad fees.
That “tinkering” with rates and “tacking on myriad fees” packs a lot of bad behavior into a very small space.
That’s not good enough. In that sense, it was typical of reporting on Citigroup as a whole.
Interestingly, there is one Weill story the entire New York financial press corps seems to have jumped on: whether Prince and others would be able to undo what is invariably described—after the fact, of course—the extensive reputational damage Weill caused the bank. [5], [6], [7], [8].
I’m not saying Hudson’s Citigroup piece was the perfect story. It was the just right one. That it took Southern Exposure to run it is troubling.
P.S. Last year, Ameriquest agreed to a $325 million settlement of a multi-state investigation into allegations that it gave borrowers inaccurate information about interest rates, discount points, and other mortgage loan terms, inflated property appraisals, and persuaded borrowers to refinance, even when refinancing didn’t offer any real advantage to the borrowers. Some borrowers also complained that Ameriquest pressured them to close loans on terms that were different from those originally proposed. The “Proud Sponsor of the American Dream” closed up shop last month and sold its assets and operations.
The buyer? Citigroup.
P.P.S. Ameriquest founder Arnall? He’s U.S. ambassador to the Netherlands, what else?
*The Audit corrects: Speaking of barely literate, an earlier version managed to misspell the names of both counties, Noxubee and Lowndes.
Coming soon: The Audit explores the even bigger debt story the business press has missed.
1. Alone At the Top
27 August 2000
I have no quarrel with the notion that the business press should be more aggressive, more ambitious and more brave. But I think you've picked a poor example on which to build that case. Back in the day, when I was a business editor (I'm now deputy editor of The New York Times Magazine), Pat McGeehan and Rich Oppel of The New York Times reported aggressively about Citi's track record as a subprime lender way back in 2000, when Sandy Weill acquired Associates, and their stories got big play in both Sunday Business and Business Day. I think that our paper's coverage on this issue since then -- by Gretchen Morgenson and many others -- has lived up to the traditional standard of afflicting the comfortable and comforting the afflicted.
Posted by Jim Schchter
on Wed 3 Oct 2007 at 03:55 PM
Perhaps you are unaware of the L.A. Time's aggressive coverage of Ameriquest Mortgage Co. beginning in early 2005 -- long before others got on to the subprime mess.
In a series of stories by staff writer E. Scott Reckard and contributor Mike Hudson beginning in Feb. 2005, the L.A. Times shone a light on the "boiler room" culture in some Ameriquest loan offices, the use of fraudulent appraisals to win loan approvals, and the fact that Ameriquest's ads rarely mentioned that it was a "subprime" lender -- even though at the time it was the nation's largest.
We subsequently learned that our coverage was closely followed by regulators who ultimately negotiated a $325 million settlement from Ameriquest. You can find those stories at latimes.com.
John Corrigan
Deputy Business Editor
Los Angeles Times
Posted by John Corrigan
on Wed 3 Oct 2007 at 04:55 PM
I could be mistaken, but this statement seems factually inaccurate --
"Ameriquest Mortgage Co., which only a few years before was still called Long Beach Mortgage Co. ..."
Long Beach Mortgage continues to exist and is owned by Washington Mutual.
Posted by CME
on Thu 4 Oct 2007 at 10:49 AM