The Spitzer After-Effect
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

So Citigroup’s shareholders have realized that maybe skill at fending off regulators and lawsuits isn’t the most important skill in a bank chief executive, after all. That’s one lesson for New Yorkers to take away from the resignation this week of the CEO of Citigroup, Charles Prince, after it emerged that Citigroup had losses of between $8 billion and $11 billion on sub-prime mortgages, on top of an already-reported loss of $2.2 billion.
Some saw it coming. In that category belongs Landon Thomas Jr.’s dispatch in the July 18, 2003 New York Times, before Mr. Prince even took over from Sanford Weill as the chief of Citigroup, but after Mr. Prince had been picked for the job. That article reported, “Though there is a widespread acceptance, if not resignation, that Mr. Prince will remain in charge for the near future, many Citigroup bankers are eagerly awaiting an executive with a keener understanding of the business. While the bankers say they have respect for Mr. Prince’s knowledge of regulatory issues and credit his history as Mr. Weill’s top legal adviser on all his major deals, they are less impressed with his nuts-and-bolts knowledge of their industry.”
The Times article went on, “Although Mr. Weill took pains on Wednesday to remark upon Mr. Prince’s successes in running the investment bank, an in-depth knowledge of the banking industry was not the reason he was picked for that job. Instead, Mr. Weill appointed Mr. Prince, a trusted confidant and a skilled corporate lawyer, to guide the bank through a difficult time with regulators last September.”
The then-attorney general of New York, Eliot Spitzer, seemed especially eager to push Mr. Weill aside, for it was Mr. Weill that Mr. Spitzer had attempted to embarrass in connection with a stock analyst who covered AT&T for Salomon Smith Barney, Jack Grubman. Salomon was a unit of Citigroup, whose CEO, Mr. Weill, acknowledged he had asked Grubman to review his “neutral” rating of AT&T stock at the same time that Citigroup was seeking to be the lead underwriter for the planned issuance of ATT Wireless stock. Grubman upgraded the rating to “buy,” but later claimed to a friend, in another e-mail message unearthed by Spitzer, that his real motive was getting Weill to help his children get into the 92nd Street Y pre-school, a task he described as harder than getting in to Harvard.
As if Mr. Spitzer weren’t enough, the then-state comptroller of New York, Alan Hevesi, turned to his campaign contributors to serve as class-action lawyers suing Citigroup on behalf of Worldcom shareholders. Mr. Hevesi has since pleaded guilty to a felony and resigned from office, while Mr. Spitzer has been elevated to the governor’s office, where he has been having a difficult time of it. The damage done to one of New York’s leading banks and employers remains. Its shareholders are now feeling the consequences of the Spitzer-Hevesi era, when the ability to handle regulators was a more important qualification for a CEO than knowledge of the banking industry or the ability to weigh risk against reward. This is not an attack on Mr. Prince, who so far as we can tell served honorably and to the best of his abilities. It is an attack on the regulatory system that made it, for a while, appear to make sense to have a lawyer rather than a banker running a top New York bank.