Editing Citigroup (section)

===Subprime mortgage crisis (2007)===
Heavy exposure to troubled mortgages in the form of [[collateralized debt obligation]] (CDOs), compounded by poor risk management, led Citigroup into trouble as the [[subprime mortgage crisis]] worsened in 2007. The company had used elaborate mathematical risk models which looked at mortgages in particular geographical areas, but never included the possibility of a national housing downturn or the prospect that millions of mortgage holders would default on their mortgages. Trading head [[Thomas Maheras]] was close friends with senior risk officer David Bushnell, which undermined risk oversight.<ref>{{cite news | url=https://www.nytimes.com/2008/01/27/business/yourmoney/27kim.html | title=What's $34 billion on Wall Street? | first=Landon Jr. | last=Thomas | work=[[The New York Times]] | date=January 27, 2008 | url-access=limited}}</ref><ref>{{cite news | url=https://www.nytimes.com/2008/11/23/business/23citi.html | title=Citigroup Saw No Red Flags Even as It Made Bolder Bets | first1=Eric | last1=Dash | first2=Julie | last2=Creswell | work=[[The New York Times]] |date=November 23, 2008 | url-access=limited}}</ref> As Treasury Secretary, [[Robert Rubin]] was said to be influential in lifting the [[Glass–Steagall Act]] that allowed Travelers and Citicorp to merge in 1998. Then on the board of directors of Citigroup, Rubin and Charles Prince were said to be influential in pushing the company towards [[Mortgage-backed security|MBS]] and CDOs in the subprime mortgage market.

Starting in June 2006, Senior Vice President [[Richard M. Bowen III]], the chief underwriter of Citigroup's Consumer Lending Group, began warning the board of directors about the extreme risks being taken on by the mortgage operation that could potentially result in massive losses. The group bought and sold $90&nbsp;billion of residential mortgages annually. Bowen's responsibility was essential to serve as the quality control supervisor ensuring the unit's creditworthiness. When Bowen first became a [[whistleblower]] in 2006, 60% of the mortgages were defective. The number of bad mortgages began increasing throughout 2007 and eventually exceeded 80% of the volume. Many of the mortgages were not only defective but were a result of [[mortgage fraud]]. Bowen attempted to rouse the board via weekly reports and other communications. On November 3, 2007, Bowen emailed Citigroup chairman [[Robert Rubin]] and the bank's [[chief financial officer]], head auditor, and the chief risk management officer to again expose the risk and potential losses, claiming that the group's internal controls had broken down and requesting an outside investigation of his business unit. The subsequent investigation revealed that the Consumer Lending Group had suffered a breakdown of internal controls since 2005. Despite the findings of the investigation, Bowen's charges were ignored, even though withholding such information from shareholders violated the [[Sarbanes–Oxley Act]] (SOX), which he had pointed out. Citigroup CEO [[Charles Prince]] signed a certification that the bank was in compliance with SOX despite Bowen revealing this wasn't so. Citigroup eventually stripped Bowen of most of his responsibilities and informed him that his physical presence was no longer required at the bank. The Financial Crisis Inquiry Commission asked him to testify about Citigroup's role in the mortgage crisis, and he did so, appearing as one of the first witnesses before the Commission in April 2010.<ref>{{cite news | url=https://www.cbsnews.com/news/prosecuting-wall-street/ | title=60 Minutes: Prosecuting Wall Street | work=[[CBS News]] | date=December 5, 2011}}</ref>

As the crisis began to unfold, Citigroup announced on April 11, 2007, that it would eliminate 17,000 jobs, or about 5% of its workforce, in a broad restructuring designed to cut costs and bolster its long underperforming stock.<ref>{{cite web | url=http://edgar.secdatabase.com/1759/110465907027668/filing-main.htm | title=Citigroup, Form 8-K, Current Report | publisher=[[U.S. Securities and Exchange Commission]] | date=April 11, 2007}}</ref> Even after [[Security (finance)|securities]] and [[brokerage]] firm [[Bear Stearns]] ran into serious trouble in summer 2007, Citigroup decided the possibility of trouble with its CDOs was so tiny (less than 1/100 of 1%) that they excluded them from their risk analysis. With the crisis worsening, Citigroup announced on January 7, 2008, that it was considering cutting another 5 percent to 10 percent of its 327,000 member-workforce.<ref>{{cite news | url=https://www.reuters.com/article/businessNews/idUSN0738522020080107 | title=Citi mulls cutting work force by 5 to 10 percent: report |last=Plumb | first=Christian | work=[[Reuters]] |date=January 1, 2008}}</ref>