Breaking Up the Big Wall Street Banks Is Back in the Headlines

By Pam Martens and Russ Martens: April 24, 2017

Logos of Wall Street BanksIn the past two weeks, newspaper headlines have revived the debate on whether the mega Wall Street banks continue to pose a systemic threat to the U.S. banking system and the economy. This is a desperately needed public debate that demands facts – not a revisionist history of what actually caused the 2008-2010 Wall Street collapse and the worst economic downturn since the Great Depression.

This recent attention has been fueled by reports that Gary Cohn, former President of Goldman Sachs who now heads Donald Trump’s National Economic Council, met privately this month with members of the Senate Banking Committee and indicated he would be open to the restoration of a modernized version of the Glass-Steagall Act. (Mr. Cohn did not refute those reports.)

The 1933 Glass-Steagall Act was passed by Congress at the height of the Wall Street collapse and Great Depression. It acccomplished two equally critical tasks. It created Federally-insured deposits at commercial banks to restore the public’s confidence in the U.S. banking system and it barred insured commercial banks from being part of a Wall Street investment bank or securities underwriting operation because their high-risk speculative activities frequently blew up the house. That legislation protected the U.S. banking system for 66 years until its repeal under the Bill Clinton administration in 1999 at the behest of Wall Street power players like Sandy Weill of Citigroup. It took only nine years after its repeal for the U.S. financial system to crash, requiring the largest public bailout in U.S. history.

The problem with the newspaper debate today is that almost no one has their facts straight. On April 13, John Authers correctly wrote at the Financial Times that “The continuing yearning for Glass-Steagall shows that the world (not just the US) has not come to terms with the crisis of 2008. Justice has not been seen to be done; remedies to prevent a repeat have not been seen to be applied. Dodd-Frank has failed to instill confidence.” All that is absolutely true. But Authers also bizarrely states that “Bringing back Glass-Steagall would not alter the scale of today’s financial institutions.”

The Financial Times journalist is apparently not aware that the hundreds of trillions of dollars of derivatives sitting on the books of the biggest Wall Street banks would not exist but for the insured deposits providing the ballast and credit rating.

Next came the Washington Post’s Editorial Board on April 19, which went with the headline: “A Depression-era law could get a new life under Trump. Here’s what it should look like.” But the article made the preposterous claim that “The actual causal link between the repeal of Glass-Steagall and the financial crisis is a matter of great dispute…because the investment firms whose failures triggered the panic, Bear Stearns and Lehman Brothers, had never been subject to the law.”

The multiple errors in the above sentence are symbolic of a general lack of public understanding of the financial crisis. Every Wall Street firm was “subject to the law” until its 1999 repeal. Bear Stearns collapsed in March 2008 – long before the real panic set in during September of that year. Lehman Brothers was not only subject to the Glass-Steagall Act but it benefitted dramatically from its repeal by engaging in insured-deposit banking. As we reported in 2012:

“Lehman Brothers owned two FDIC insured banks, Lehman Brothers Bank, FSB and Lehman Brothers Commercial Bank. Together, they held $17.2 billion in assets as of June 30, 2008, 75 days before Lehman went belly up. Lehman Brothers Banks FSB is where Lehman handled its mortgage loan originations. When the FDIC approved the Lehman Brothers Commercial Bank application in 2005, it specifically noted that the FDIC insured bank ‘anticipates acting as a derivatives intermediary, engaged in matched trading of interest rate products, primarily interest rate swaps, as well as forward purchase agreements and options contracts.’ ”

The New York Times has played a leading role in obfuscating what actually caused the financial crash – first through writer Andrew Ross Sorkin and more recently under the pens of economist Paul Krugman and writer William Cohan.

In a July 2015 column, Cohan ridiculed Senators Elizabeth Warren and John McCain for introducing legislation to restore the Glass-Steagall Act. Cohan wrote:

“Despite the relentless rhetoric, the fact that commercial banks are in the investment banking business and investment banks are in the commercial banking business had almost nothing to do with causing the financial crisis of 2008.”

The unassailable facts simply do not support this wild assertion. The largest bank in the country at the time, Citigroup, played the key role in the banking panic. Its share price collapsed by more than 89 percent in 2008, eventually to trade as a 99-cent penny stock. Citigroup received the largest taxpayer bailout in U.S. history – much of it initially shielded from public view. The U.S. government infused $45 billion in equity into Citigroup and over $300 billion in asset guarantees; the Federal Deposit Insurance Corporation (FDIC) guaranteed $5.75 billion of Citigroup’s senior unsecured debt and $26 billion of its commercial paper and interbank deposits; the Federal Reserve secretly funneled $2.5 trillion in almost zero-interest loans to units of Citigroup between 2007 and 2010. And those are just the details the public has been given. It took a multi-year court battle to unleash the details of what the Fed was doing behind a dark curtain.

That Citigroup, a behemoth commercial and investment bank, played a pivotal role in the financial panic is not just the opinion of Wall Street On Parade. Multiple government insiders at the time of the crash share that opinion, including Sheila Bair, the Chair of the FDIC at the time.

Citigroup was so big that its tentacles reached into every major institution on Wall Street. Prior to the collapse of Lehman Brothers, Bloomberg News ran a story on July 13, 2008 regarding Citigroup’s massive off-balance sheet exposures, including a chart which stated: “Citigroup keeps $1.1 trillion of assets in off-balance-sheet entities, an amount equivalent to half the company’s assets and more than 12 times its dwindling market value.”

A week later, Bloomberg News was back to reporting on the decaying situation at Citigroup with the headline: “Citigroup Unravels as Reed Regrets Universal Model.” The article said that the bank “is mired in a crisis” with “$54.6 billion in writedowns and credit costs.” The article further notes that Citigroup “made some of the biggest bets in the subprime lending debacle,” it had to “bail out at least nine off-balance-sheet investment funds in the past year” and “defaults are rising.”

The official report on the crisis, the Financial Crisis Inquiry Report, also called out Citigroup as a pivotal player in the crash. The report noted:

“More than other banks, Citigroup held assets off of its balance sheet, in part to hold down capital requirements. In 2007, even after bringing $80 billion worth of assets on balance sheet, substantial assets remained off. If those had been included, leverage in 2007 would have been 48:1…”

A few days ago, Cohan penned his latest revisionist history of the crash, calling the concept of separating investment banks from commercial banks to be among Washington’s “silly ideas.” Cohan now adds to his unsupported repertoire the following preposterous assertion:

“The problem on Wall Street is not the size of the banks, their concentration of assets or the businesses they choose to be in.”

In fact, researchers at the agency created under the Dodd-Frank financial reform legislation to monitor systemic risk on Wall Street, the Treasury Department’s Office of Financial Research (OFR), has published data showing that massive concentration of risk and interconnectivity of the largest Wall Street firms is precisely the continuing problem that threatens long-run financial stability in the U.S.

Has Former Goldman Sachs President, Gary Cohn, Gone Rogue on Glass-Steagall?

By Pam Martens and Russ Martens: April 17, 2017

Gary Cohn, President and COO of Goldman Sachs

Gary Cohn, former President and COO of Goldman Sachs, Is Director of the National Economic Council in the Trump Administration

There are a few important things to know about Gary Cohn. Until Donald Trump tapped him to be the Director of the National Economic Council, he had worked at Goldman Sachs for a quarter century, rising to the position of President of the firm and second only to its CEO, Lloyd Blankfein. Cohn walked out of Goldman in December with approximately $285 million, comprised mainly of Goldman stock, some of which had been granted early vesting. Since his exit from Goldman, Cohn has wasted no time in selling large chunks of his Goldman shares according to his financial disclosures. While this serves to reduce his conflicts of interest with Goldman, it also provides a face-saving means of exiting a massive position in a Wall Street bank without the appearance of panic or disloyalty.

Against this backdrop comes the widely reported news that on April 5 Cohn met with Senators serving on the Senate Banking Committee and expressed support for bringing back a modern-day version of the depression era Glass-Steagall Act – legislation which was passed as a result of the Wall Street collapse of 1929 to 1933, which erased 90 percent of the market’s value. (Yes, 90 percent.) That legislation created Federally-insured deposits and barred insured commercial banks from being affiliated with Wall Street investment banks. It protected the U.S. financial system for 66 years until its repeal in 1999 under the Bill Clinton administration. It took only nine years after its repeal for Wall Street to implode in the same epic fashion as the ’29 crash.

The only reason that Wall Street survived at all from 2008 to 2010 was that the Federal Reserve was secretly funneling a cumulative $16 trillion in almost zero rate loans to any Wall Street bank, foreign or domestic, that could fog a mirror and claim to be viable. On top of that, the Fed engaged in a toxic securities cleanup program benignly known as Quantitative Easing, where it bought up Wall Street’s dodgy mortgage-backed securities, putting the mess on its own balance sheet — where much of it remains to this day.

Theories abound as to why a long-tenured veteran of Goldman would want to earn the ire and backlash of his colleagues on Wall Street by taking on such an unpopular Wall Street position as breaking up the biggest banks on Wall Street and forcing them to shed their commercial banking operations. Goldman itself became a bank holding company at the peak of the financial crisis in 2008, allowing it to borrow with abandon from the Fed.

One theory is that Cohn is still talking his Goldman book. Patrick Jenkins of the Financial Times writes:

“But Glass-Steagall is not exactly anti-Wall Street. It is anti-universal bank. So while it would be a nightmare for Goldman Sachs’s big investment banking competitors, it would be a relative non-event for Goldman Sachs itself. In competitive terms, it could be a huge boost.”

It’s true that Goldman’s commercial banking operations are dwarfed by the likes of JPMorgan Chase, Bank of America, Citigroup and Wells Fargo  — all of which function as universal banks with investment banking, brokerage firms, and commercial banking under one bank holding company roof. But what people tend to forget is that Goldman Sachs has parked a mind-numbing amount of derivatives at its own commercial bank, Goldman Sachs Bank USA.

Wall Street On Parade reported the following on this matter in January:

“The Office of the Comptroller of the Currency (OCC) is the regulator of national banks. Each quarter it publishes a report on the derivative holdings of the biggest Wall Street banks and their holding companies. Its most recent report shows that as of September 30, 2016 Goldman Sachs Bank USA (a taxpayer-backstopped, FDIC insured bank where it holds its derivatives) had “credit exposure to risk-based capital” of 433 percent. That figure was more than double that of JPMorgan Chase (216 percent) and six times that of Bank of America (68 percent).

“There’s another big problem with Goldman Sachs: it has a miniscule asset base compared to the big guns on Wall Street but it’s attempting to play in the big leagues in terms of derivatives…Goldman Sachs is the third largest holder of derivatives on Wall Street with $45.48 trillion in notionals (face amount). (As of 2015, the entire GDP of the United States was only $18 trillion.) But Goldman only has $880 billion in assets. That ratio compares to JPMorgan Chase with $2.5 trillion in assets and $50.6 trillion in derivatives and Citigroup with $1.8 trillion in assets and $51.78 trillion in derivatives.”

The theory that has yet to gain traction is that there may be many more executives at Goldman who agree with Cohn on the point that the financial system remains on shaky footing and that holding high-risk derivatives in the trillions of dollars on the books of taxpayer-backstopped commercial banks is a lousy way to run a financial system — that it is simply courting the next financial disaster and taxpayer bailout from a nation that has yet to recover from the last one.

Barclays’ Whistleblower-Gate Raises Alarms Bells

By Pam Martens and Russ Martens: April 10, 2017

Jes Staley, Barclays CEO

Jes Staley, Barclays CEO

It is not a promising development for changing the culture of Wall Street when today’s newswires are reporting the sordid details of how the big Wall Street player, Barclays, engaged U.S. law enforcement in an attempt to hunt down the identity of an internal whistleblower. More on that in a moment, but first some background.

After discovering that Wall Street’s mandate to fairly and efficiently allocate capital had morphed into the manufacture of fraudulent securities with triple-A ratings that blew up the U.S. economy in 2008 with the impact of a flamethrower at a fireworks factory, Congress passed the Dodd-Frank financial reform legislation in 2010 to, ostensibly, put Wall Street back on a straight and narrow path.  One of Dodd-Frank’s sections expressly prohibits retaliation against whistleblowers and provides whistleblowers legal remedies if they are discharged or retaliated against. Another section provides potentially hefty awards through the Securities and Exchange Commission if the whistleblower provides original information which leads to a successful enforcement action with sanctions of over $1 million.

The whistleblower section of Dodd-Frank likely came about as a result of investigations showing that internal whistleblowers of the big Wall Street banks had indeed warned of fraud and malfeasance in the leadup to the crash, only to be barred from the premises or have their job eliminated, as in the case of Richard Bowen of Citigroup or Alayne Fleischmann of JPMorgan Chase, respectively.

Then there were the gifted writers who had neither the stomach nor moral blinders needed to sustain their careers on Wall Street. Instead, they used their knowledge to warn the American people in meticulous detail that the culture had been hopelessly corrupted. People like Nomi Prins, formerly of Goldman Sachs; Michael Lewis of Salomon Brothers; and Frank Partnoy of Morgan Stanley come to mind.

Even whistleblowers within financial regulatory bodies like the Securities and Exchange Commission were subjected to retaliation by their own watchdog agency. That unconscionable conduct has continued long after the passage of Dodd-Frank, as the Carmen Segarra case at banking watchdog, the New York Federal Reserve Bank, strongly suggests. Segarra was an attorney and bank examiner at the New York Fed who was fired after refusing to change her review of Goldman Sachs. She made public the internal tape recordings she had made, showing the New York Fed as a lapdog regulator. Despite a Senate hearing of the matter, the President of the New York Fed, William Dudley, has kept his job and become the preposterous, self-anointed lecturer on changing Wall Street’s culture.

Against this backdrop comes today’s story about Jes Staley, CEO of Barclays for just the past 15 months and formerly a three-decade exec at JPMorgan Chase: both banks being in serial trouble with regulators.

Staley’s long tenure on Wall Street suggests that it would be next to impossible for him not to have heard about Dodd-Frank and its protections for whistleblowers. But when confronted with an internal whistleblower who had come forward anonymously, Staley unleashed the dogs in attempting to find out his or her identity. According to a statement released by Barclays, Staley used both an internal group and U.S. law enforcement in efforts to identify the whistleblower, raising the question as to whether laws really mean anything when it comes to the financial industry.

The Board of Barclays hired an outside law firm to investigate the matter, Simmons & Simmons LLP, and concluded that it would not fire Staley but simply issue a written reprimand and cut his bonus.

All of this proving, once again, that when it comes to the devolving culture of Wall Street, there is no end in sight.

Why Hasn’t Citigroup’s Banking Charter Been Yanked?

By Pam Martens and Russ Martens: April 3, 2017

citigroup-logoCitigroup was back in the news again last Tuesday when the Consumer Financial Protection Bureau (CFPB) reported that its banking unit, Citibank, was among the three banks with the highest average monthly complaints filed against it alleging credit card abuses. (The other two banks were Capital One and JPMorgan Chase.)

This is the tip of the iceberg when it comes to Citigroup and its haloed Citibank.

On May 20, 2015, Citigroup’s banking division pleaded guilty to a criminal felony charge for foreign currency rigging following a decade of serial charges against the global behemoth. (See rap sheet below.) Instead of putting this incorrigible recidivist out of business, the Federal government has continued to allow its shady proclivities to be perpetuated against an unsuspecting public.

The U.S. central bank, the Federal Reserve, which incompetently oversees Citigroup as it takes on massive derivative risk and continues to fleece the public, saw fit to secretly funnel $2 trillion of loans into Citigroup’s collapsing carcass from 2007 to at least 2010 at almost zero interest rates. During that period, Citigroup was allowed to continue to charge double-digit interest rates on its credit cards and put struggling homeowners out on the street from its tricked-up mortgages. The $2 trillion in secret loans came on top of the publicly announced $45 billion in equity infusions and more than $300 billion in asset guarantees by the Federal government to keep this ethically-challenged institution alive.

Why would the Federal government want to bail out such a recidivist lawbreaker instead of simply putting it out of business? Citigroup is one of those too-big-to-fail, too-big-to-jail and too-interconnected-to-fathom financial goblins that continue to threaten the U.S. financial landscape today.

The CFPB’s report last week brought to mind a Harper’s article by Andrew Cockburn in April 2015. Cockburn had traced the history of how Sandy Weill had parlayed Commercial Credit through a series of mergers that, thanks to the repeal of the Glass-Steagall Act by President Clinton & Company in 1999, had culminated in the too-big-to-fail Citigroup.

With the blessing of its regulators, including the Federal Reserve, Citigroup was allowed to replicate the precise banking model which had brought on the 1929 crash and Great Depression: it was allowed to hold savings deposits while making wild speculations on Wall Street and selling bogus stocks to the hapless public.

While today Bill Dudley, President of the Federal Reserve Bank of New York, incessantly fingers his worry beads and ponders what it will take to change the jaded culture of Wall Street mega banks, Cockburn quickly drilled down to the problem: Citigroup grew out of a loan sharking operation that permeates its culture.

Cockburn writes:

“Weill had recently been eased out from Shearson Lehman/American Express [in 1985], a financial conglomerate he had helped to build. Eager to get back in the game, he bought a Baltimore firm called Commercial Credit. In the view of Weill and his protégé, Jamie Dimon [now CEO at JPMorgan Chase], their new acquisition was in the beneficent business of supplying ‘consumer finance’ to ‘Main Street America.’ Their office receptionist, Alison Falls, thought otherwise. Overhearing their conversation at work one day, she called out, ‘Hey, guys, this is the loan-sharking business. Consumer finance is just a nice way to describe it.’

“Falls had it right. Commercial Credit made loans to poor people at predatory interest rates. Strapped to pay off their loans, borrowers were encouraged to refinance, with added fees each time. Gail Kubiniec, who was then an assistant sales manager at the company’s branch office in Tonawanda, New York, remembers that the basic aim was to lend money to ‘people uneducated about credit. You could take a five-hundred-dollar loan and pack it with extra items like life insurance—that was very lucrative. Then you could roll it over with more extra items, then reroll the new loan, and the borrower would go on paying and paying and paying.’ ”

Cockburn includes an excerpt from an affidavit that Kubiniec had filed with the Federal Trade Commission in 2001 about the practices of Commercial Credit, which had changed its name to CitiFinancial:

“I and other employees would often determine how much insurance could be sold to a borrower based on the borrower’s occupation, race, age, and education level. If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the coverages CitiFinancial offered. The more gullible the consumer appeared, the more coverages I would try to include in the loan.”

Wall Street On Parade took a look at the CFPB’s consumer complaint database to peruse the tens of thousands of complaints that have been filed against Citigroup and its banking unit, Citibank, since the CFPB began operations in 2011. The complaints range from debt collection practices to credit card abuses to student loan gouging to mortgage and foreclosure abuse.

Given the serial charges and settlements by Citigroup as listed below, one has to seriously wonder if fraud has not only become a business model at Wall Street banks (as Senator Bernie Sanders of Vermont has stated) but an accepted business model by Wall Street’s regulators and the U.S. Justice Department.

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The following is just a sampling of charges brought against Citigroup and/or its various units since December 2008:

December 11, 2008: SEC forces Citigroup and UBS to buy back $30 billion in auction rate securities that were improperly sold to investors through misleading information.

February 11, 2009: Citigroup agrees to settle lawsuit brought by WorldCom investors for $2.65 billion.

July 29, 2010: SEC settles with Citigroup for $75 million over its misleading statements to investors that it had reduced its exposure to subprime mortgages to $13 billion when in fact the exposure was over $50 billion.

October 19, 2011: SEC agrees to settle with Citigroup for $285 million over claims it misled investors in a $1 billion financial product.  Citigroup had selected approximately half the assets and was betting they would decline in value.

February 9, 2012: Citigroup agrees to pay $2.2 billion as its portion of the nationwide settlement of bank foreclosure fraud.

August 29, 2012: Citigroup agrees to settle a class action lawsuit for $590 million over claims it withheld from shareholders’ knowledge that it had far greater exposure to subprime debt than it was reporting.

July 1, 2013: Citigroup agrees to pay Fannie Mae $968 million for selling it toxic mortgage loans.

September 25, 2013: Citigroup agrees to pay Freddie Mac $395 million to settle claims it sold it toxic mortgages.

December 4, 2013: Citigroup admits to participating in the Yen Libor financial derivatives cartel to the European Commission and accepts a fine of $95 million.

July 14, 2014: The U.S. Department of Justice announces a $7 billion settlement with Citigroup for selling toxic mortgages to investors. Attorney General Eric Holder called the bank’s conduct “egregious,” adding, “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”

November 2014: Citigroup pays more than $1 billion to settle civil allegations with regulators that it manipulated foreign currency markets. Other global banks settled at the same time.

May 20, 2015: Citicorp, a unit of Citigroup becomes an admitted felon by pleading guilty to a felony charge in the matter of rigging foreign currency trading, paying a fine of $925 million to the Justice Department and $342 million to the Federal Reserve for a total of $1.267 billion. The prior November it paid U.S. and U.K. regulators an additional $1.02 billion.

May 25, 2016: Citigroup agrees to pay $425 million to resolve claims brought by the Commodity Futures Trading Commission that it had rigged interest-rate benchmarks, including ISDAfix, from 2007 to 2012.

July 12, 2016: The Securities and Exchange Commission fined Citigroup Global Markets Inc. $7 million for failure to provide accurate trading records over a period of 15 years. According to the SEC: “CGMI failed to produce records for 26,810 securities transactions comprising over 291 million shares of stock and options in response to 2,382 EBS requests made by Commission staff, between May 1999 and April 2014, due to an error in the computer code for CGMI’s EBS response software. Despite discovering the error in late April 2014, CGMI did not report the issue to Commission staff or take steps to produce the omitted data until nine months later on January 27, 2015. CGMI’s failure to discover the coding error and to produce the missing data for many years potentially impacted numerous Commission investigations.”

Richard Bowen Is Skeptical of Citigroup’s Culture Makeover: Here’s Why

Richard Bowen, Testifying Before the Financial Crisis Inquiry Commission

Richard Bowen, Testifying Before the Financial Crisis Inquiry Commission

Editor’s Note: Richard Bowen is the former Citigroup Senior Vice President who repeatedly alerted his superiors in writing that potential mortgage fraud was taking place in his division. At one point, Bowen emailed a detailed description of the problem to top senior management, including Robert Rubin, the former U.S. Treasury Secretary and then Chairman of the Executive Committee at Citigroup. Bowen’s reward for elevating serious ethical issues up the chain of command was to be relieved of most of his duties and told not to come to the office. Bowen testified before the Financial Crisis Inquiry Commission in 2010. In 2011, Bowen had the courage to pull back the curtain on Citigroup’s moral code on the CBS program 60 Minutes. Bowen is today a Professor of Accounting at the University of Texas at Dallas and speaks widely on the ethical breakdowns that led to the 2008 Wall Street financial collapse. Professor Bowen’s analysis of Citigroup’s latest foray into changing its ethical culture appears below.

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Who’s Trying Now to Save Citigroup’s Soul? 

By Richard Bowen: March 27, 2017 

The headline in last Saturday’s Wall Street Journal captured my immediate attention. The Banker-Turned-Seminarian Trying to Save Citigroup’s Soul… What??

Supposedly Citigroup is taking a “new” approach to the cultural and other issues they have had for years and have hired Dr. David Miller, a Princeton University professor, theologian and former banker to be their “on call ethicist.”  Dr.  Miller heads the University’s Faith & Work Initiative and has worked with Citi intermittently over the last three years. He says, “You need banking, just like you need pharmaceuticals.”

His role, to provide “advice and input to senior management.” This includes CEO Michael Corbat who recently raised an idea that came from Dr. Miller. Mr. Corbat said, when faced with an uncertain situation, “ask the four M’s: What would your mother, your mentor, the media and—if you’re inclined—your maker think?” The problem, he adds, isn’t the bad apples. Rather, it is how easy it is for good employees to justify bad decisions when they face gray-zone questions.

And Citi has had more than its share of gray zone areas.  Citigroup has had numerous issues and has earned a reputation for ethical problems before and after the financial crisis. Dr. Miller was brought in by Mr. Corbat who was surprised when the company’s employee surveys showed some workers weren’t comfortable escalating concerns about possible wrongdoing.

He was also disturbed by the banking industry’s image problem overall. “If you look today at what the poll numbers say, what the general population says, there is distrust of banks,” Mr. Corbat said in an interview.

The article goes on to say, “Citigroup is embracing Dr. Miller’s idea (influenced by Plato and Aristotle) of three lenses to apply in ethical decision-making, an approach: Is it right, good and fitting? Citigroup executives have added:  Is it in our clients’ interest, does it create economic value, and is it systemically responsible?”

The bank is sharing these ideas with employees worldwide, working them into its ethics and training manuals and mission statement and posting it on the wall of its Manhattan headquarters lobby.

But wait! This is not a “new” idea.

I was at Citi, when in 2003 they were fined $1.5 billion for “false and misleading research reports;” and in 2004 when they were hit with $5 billion in fines and settlements associated with Enron and WorldCom. These and other scandals in Japan Private Banking and the European bond market led to the Federal Reserve (in 2005) to publicly announce that they would not approve any major Citigroup mergers and acquisitions, until the company resolved their issues.

As a result of all this and more, Citi vowed that these issues would not happen again. And in March 2005, then CEO Chuck Prince announced his strategy to transform the financial giant and to provide a new direction for the future, called the “Five Point Ethics Plan” to: improve training, enhance focus on talent and development, balance performance appraisals and compensation, improve communications, and strengthen controls. A comprehensive ethics policy was implemented requiring annual training by all employees. Employees could be fired if they did not follow the new ethics plan.

And Mr. Prince announced, with great fanfare, the hiring of Lewis B. Kaden, a former professor and director of Columbia University’s Center for Law and Economic Studies and moderator of PBS’s popular Ethics in America TV series, which earned a Peabody Award. Mr. Kaden was named Vice Chairman and was over ethics and other areas. In the trenches we called him the Ethics Czar.

Well despite desperation, a new ethics policy, training and fear, the Five Point Ethics Plan didn’t work. By now you know by heart of their subsequent mortgage fraud and what led to my and Sherry Hunt’s blowing the whistle on Citi. And following that there were the LIBOR and FOREX trading scandals.

To this day, Citi still has ethics issues as witness one of the latest, their being investigated for hiring practices  that could violate foreign bribery laws.

We can “talk” culture all day long, mandate it, instill fear  re firing,  but if leadership is not an example and role model for ethical behavior… well it’s not going to happen! If a company wants to promote and assure ethical standards are followed then transparency, trust and developing an ethical culture based on guiding principles are critical.

In a previous post I quoted Ms.Yves Smith, commenting on an article “Can Philosophy Stop Bankers From Stealing?” by Lynn Parramore, a senior research analyst at the Institute for New Economic Thinking.  Ms. Parramore states, “Pernicious cultural norms inside American banks and regulatory agencies have crowded out fundamental moral principles…”

Ms. Parramore quotes Ed Kane, Professor of Finance at Brown College, “Ed Kane believes it’s vital to discuss moral questions, in plain English, without abstractions. Following his own advice, he is blunt in characterizing some of the behavior in the banking industry in recent years: “Theft is a forced taking of other people’s resources,” he says. ‘That’s what’s going on here.” Kane urges a deep inquiry into our culture to understand why bankers so commonly get away with crimes in the United States.”

Evidence shows Citi did not change its culture. It did not follow its own ethics plan. It may presently have a 60 page ethics policy, however, that has proved to not be enough. Posting it does not change behavior.

Who knows, perhaps this time around it may work. Dr. Miller believes banks can change. “To make the assumption that an organization cannot be more ethical than it was is to give up before you start… It is not naive. It is a realistic and necessary goal.”

Am I skeptical? Heck yes.  Let’s see if Citigroup has the moral fortitude to indeed finally make good culture changes happen. For the sake of our country, I wish Dr. Miller much success.