Accountants and auditors – you can relax (though not for too long, because Repo 105 can’t just be shrugged off).
For a moment at least, the spotlight will turn to the consultants. As the FT reported on Wednesday:
Citigroup’s disastrous foray into complex collateralised debt obligations before the financial crisis was partly based on the recommendation of outside consultants hired to advise the bank’s leaders, a former senior manager revealed.
In written testimony to an inquiry into the turmoil on Wednesday, Thomas Maheras, a former co-head of Citi’s investment bank, lifted the lid on a move that led to more than $50bn (€37bn, £33bn) in losses and forced the US government to bail out the company.
Mr Maheras said that, following a study by a consulting firm – believed to be Oliver Wyman – in 2005, Citi decided to ramp up parts of its fixed income business, including CDOs
A PDF of Maheras’ testimony is available on the website of the Financial Crisis Inquiry Commission (FCIC) along with that of Alan “I blame the fall of the Berlin Wall” Greenspan.
Nestor Dominguez, Citi’s former co-head of global CDOs, also makes an appearance. According to his (rather geeky, as one would both hope and expect) testimony:
The view that super-senior tranches carried virtually no risk was pervasive at Citi, based on, among other things, the level of structural subordination beneath those retained securities and our modeling and stress analysis.
Oh, models.
The second day of the FCIC hearings kicks off on Thursday at 9am ET. Expect appearances by one Chuck Prince, and a certain Robert Rubin, as well as John Dugan, the bank lobbyist turned Comptroller of the Currency.
Related links:
FCIC InDepth – online archive of FT content
Greenspan defends his role in the crisis – FT
Live blog: Greenspan at the FCIC – FT Money Supply
Rubin and Greenspan to face subprime inquiry – FT