A day after New Year’s in 2008, Citigroup announced that one of its most troubled units had a new chief operating officer: Jack Lew.
In a sea of Wall Street traders and hedge fund managers, Lew stood out. He was a career government bureaucrat who had joined Citigroup 18 months earlier hoping to gain experience in the business world. Now he was getting more than he could have imagined.
In the following months, as the entire bank teetered, Lew’s group would cope with massive losses, lawsuits from angry investors and probes from government officials. The group, called Citigroup Alternative Investments, had been overseeing one of the most toxic parts of the bank’s business, known as structured investment vehicles — unregulated entities that threatened to send Citigroup, as well as the broader financial system, over the edge.
By the fall, Citigroup turned to taxpayers for a massive bailout. In the end, the bank received more government assistance than any other company, totaling $476.2 billion in cash and guarantees, according to the Congressional Oversight Panel.
Lew, President Obama’s choice to be the next Treasury secretary, is set to face questions about his work at Citigroup at his upcoming Senate confirmation hearing. Although Democrats expect Lew to be confirmed quickly, some Republicans have complained about his tough approach in past budget battles.
His time at Citigroup is an x factor. Not much is known about his role at the bank during a pivotal moment for the U.S. financial system.
Sen. Charles E. Grassley (R-Iowa) said he intends to ask Lew about a $940,000 bonus he got from Citigroup just before the bank received government assistance.
“The Treasury secretary can’t owe anyone on Wall Street any favors,” Grassley said in a statement. “He has to be independent from special interests and put taxpayers first.”
Lew has not said much about Citigroup. The White House did not respond to repeated requests to answer questions, referring inquiries to the bank. Lew, currently Obama’s chief of staff, declined to comment for this article.
In his confirmation hearings after he was nominated to head the Office of Management and Budget in 2010, Lew said that he was only a manager at the bank, not someone enmeshed in Citigroup’s trades or financial strategy — a picture confirmed by former colleagues at Citigroup. And the seeds of Citigroup’s problems were planted long before Lew arrived there.
But Lew’s years at Citigroup could become especially relevant if he is confirmed as Treasury secretary, as that job now shoulders a new level of responsibility overseeing the country’s biggest banks.
As Treasury secretary, Lew would head up a council of regulators surveying the financial system for excessive risk. And he would have a hand in shaping a controversial new regulation, known as the Volcker rule, which seeks to ban banks from gambling with their own money — exactly the kind of activities that were part of Lew’s old business unit at Citigroup.
“His résumé isn’t sterling from this perspective,” said Mark Williams, a lecturer on finance at Boston University and a former Federal Reserve bank examiner. “Citigroup was one of the bad firms on Wall Street.”
Lew wound up at Citigroup because of Robert Rubin, an influential former Treasury secretary who worked at the bank from 1999 to 2009, according to Lew’s first boss at Citigroup, Todd Thomson.
“Bob said, ‘This guy Jack Lew, he’s really terrific . . . and he wants to get into business,” said Thomson, who was head of Citigroup’s global wealth management when he met Lew in 2006.
Thomson said he talked with Lew, then chief operating officer of New York University, over the course of a few months and was immediately impressed, despite the fact that Lew didn’t have any banking experience.
That summer, Thomson created a job for him — chief operating officer of Citigroup’s wealth-management division. Thomson said that Lew would represent him in meetings and that he turned to Lew for tasks that needed to be handled delicately.
“At a big company, it’s fraught with a lot of different issues,” said Thomson, who is now chief executive of investment firm Headwaters Capital in New York. “You need somebody who’s an adult, who goes about it with a zero-politics kind of approach, comes across as non-threatening. Jack was perfect for that role.”
The company during that time had brokers who sat in individual Citigroup bank branches and another set of brokers who joined the company when Citigroup acquired Smith Barney. Thomson wanted to combine the brokers, moving the branch employees over to Smith Barney. There was a risk, though, that egos would be bruised. So Thomson picked Lew to lead the effort.
“Things that I asked Jack to do always were done [where] everything went more smoothly,” said Thomson. “There was less noise. There was less emotion. We got results more quickly.”