London’s Most Influential: Citigroup and the Subprime Mortgage Crisis

‘What makes a city influential? Some say it’s the economic opportunities or the technological capabilities or the possibilities of connecting with other cities. We say it all comes down to people. The progress-makers. The ones whose boundless drive, passion and brilliance bring a city to life like no other. They’re why we’ve made it our job to be here. Believing in their ideas. Backing their ambitions. Making them real. In London. Around the world.

– Citigroup, The Progress 1000: London’s Most Influential People (2018)

‘The Truth is like poetry. And most people fucking hate poetry.’

The Big Short (2015)

Citigroup Inc. is an American multinational investment bank and financial services corporation with its headquarters in New York City. Citigroup owns Citicorp, the holding company for Citibank, as well as several international subsidiaries. Citigroup is ranked 3rd on the list of largest banks in the United States and, alongside JPMorgan ChaseBank of America, and Wells Fargo, is one of the Big Four banks. Citigroup is rated a systemically important financial institution and as such is on the list of systemically important banks that are regarded as too big to fail. It is also one of the nine global investment banks in the Bulge Bracket. Citigroup is ranked 32nd on the Fortune 500 list of the largest United States corporations by total revenue for their respective fiscal years. Citigroup has over 200 million customer accounts and does business in more than 160 countries. It has 209,000 employees, although it had 357,000 employees before the financial crisis of 2007-2008, when it was rescued via a massive stimulus package by the U.S. government.

The Subprime Mortgage Crisis

Heavy exposure to troubled mortgages in the form of collateralised debt obligation (CDOs), compounded by poor risk management, led Citigroup into trouble as the subprime mortgage crisis worsened in 2008. The company had used elaborate mathematical risk models that 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. 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 billion of residential mortgages annually. Bowen’s responsibility was essentially to serve as the quality control supervisor ensuring the unit’s creditworthiness. When Bowen first became a whistleblower in 2006, 60 per cent of the mortgages were defective. The amount of bad mortgages began increasing throughout 2007 and eventually exceeded 80 per cent 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 at the Consumer Lending Group had suffered a breakdown of internal controls since 2005. Regardless of the findings of the investigation, Bowen’s charges were ignored, despite the fact that 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 informing 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.

As the crisis began to unfold, on 11 April 11, 2007, Citigroup announced that it would eliminate 17,000 jobs, or about 5 percent of its workforce, in a broad restructuring designed to cut costs and bolster its long underperforming stock. Even after securities and brokerage firm Bear Stearns ran into serious trouble in the summer of 2007, Citigroup decided the possibility of trouble with its CDO’s was so tiny (less than 1/100 of 1 per cent) that they excluded them from their risk analysis. With the crisis worsening, on 7 January, 2008, Citigroup announced that it was considering cutting another 5 percent to 10 percent of its 327,000 member-workforce.

Collapse and US Government Intervention

By November 2008, Citigroup was insolvent, despite its receipt of $25 billion in taxpayer-funded federal Troubled Asset Relief Program funds. On 17 November, 2008, Citigroup announced plans for about 52,000 new job cuts, on top of 23,000 cuts already made during 2008 in a huge job cull resulting from four quarters of consecutive losses and reports that it was unlikely to be in profit again before 2010. The same day on Wall Street markets responded, with shares falling and dropping the company’s market capitalization to $6 billion, down from $300 billion two years prior. Eventually staff cuts totalled over 100,000 employees. Its stock market value dropped to $20.5 billion, down from $244 billion two years earlier. Shares of Citigroup common stock traded well below $1.00 on the New York Stock Exchange.

As a result, late in the evening on 23 November, 2008, Citigroup and Federal regulators approved a plan to stabilise the company and forestall a further deterioration in the company’s value. On November 24, 2008, the U.S. government announced a massive bailout for Citigroup designed to rescue the company from bankruptcy while giving the government a major say in its operations. A joint statement by the US Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp announced:

‘With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy.’

The bailout called for the government to back about $306 billion in loans and securities and directly invest about $20 billion in the company. The Treasury provided $20 billion in Troubled Asset Relief Program (TARP) funds in addition to $25 billion given in October. The Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) agreed to cover 90 per cent of the losses on Citigroup’s $335 billion portfolio after Citigroup absorbed the first $29 billion in losses. The Treasury would assume the first $5 billion in losses; the FDIC would absorb the next $10 billion; then the Federal Reserve would assume the rest of the risk. The assets remained on Citigroup’s balance sheet; the technical term for this arrangement is ring fencing.

In return the bank gave the U.S. Treasury $27 billion of preferred shares and warrants to acquire common stock. The government obtained wide powers over banking operations. Citigroup agreed to try to modify mortgages, using standards set up by the FDIC after the collapse of IndyMac Bank, with the goal of keeping as many homeowners as possible in their houses. Executive salaries would be capped. As a condition of the federal assistance, Citigroup’s dividend payment was reduced to $0.01 per share.

According to The Wall Street Journal, the government aid provided to Citi in 2008/2009 was provided to prevent a worldwide chaos and panic by the potential collapse of its Global Transactions Services (now TTS) division. According to the article, former CEO Pandit said if Citigroup was allowed to unravel into bankruptcy:

‘100 governments around the world would be trying to figure out how to pay their employees.’

Regulatory Action, Lawsuits and Arbitration

In July 2010, Citigroup agreed to pay $75 million to settle civil charges that it misled investors over potential losses from high-risk mortgages. The U.S. Securities and Exchange Commission said that Citigroup had made misleading statements about the company’s exposure to subprime mortgages. In 2007, Citigroup indicated that its exposure was less than $13 billion, when in fact it was over $50 billion.

In April 2011, an arbitration panel ordered Citigroup Inc to pay $54.1 million for losses from municipal securities funds that cratered between 2007 and 2008.

In August 2012, Citigroup agreed to pay almost $25 million to settle an investor lawsuit alleging that the bank misled investors about the nature of mortgage-backed securities. The lawsuit was on behalf of investors who purchased certificates in one of two mortgage-backed securities trusts from Citigroup Mortgage Loan Trust Inc in 2007.

In February 2012, Citigroup agreed to pay $158.3 million to settle claims that it falsely certified the quality of loans issued by its CitiMortgage unit over a period of more than six years, so that they would qualify for insurance from the Federal Housing Administration. The lawsuit was initially brought by Sherry Hunt, a CitiMortgage employee.

On 9 February, 2012, it was announced that the five largest mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) agreed to a historic settlement with the federal government and 49 states. The settlement, known as the National Mortgage Settlement (NMS), required the servicers to provide about $26 billion in relief to distressed homeowners and in direct payments to the states and federal government. This settlement amount makes the NMS the second largest civil settlement in U.S. history, only trailing the Tobacco Master Settlement Agreement. The five banks were also required to comply with 305 new mortgage servicing standards.

In 2014, Citigroup agreed to pay $7 billion to resolve claims it misled investors about shoddy mortgage-backed securities in the run-up to the financial crisis. Attorney General Eric H. Holder Jr. said:

‘The bank’s misconduct was egregious. As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits. The settlement did not absolve the bank or its employees from facing criminal charges.’


In a leaked report titled Plutonomy: Buying Luxury, Explaining Global Imbalances, which was given to their investor clients in 2005, a team of global strategists at Citigroup wrote an analysis of the global distribution of wealth and consumers. In it they state that global imbalances have grown to such an extent that they are justified in speaking of a plutonomy, where economic growth is powered by and largely consumed by the wealthy few, and demanding a renewed understanding of how this impacts consumption. The authors cite data showing that the top 1 per cent of households in the US economy accounted for about 20 per cent of the total income in 2000, which is roughly equal to the share of the bottom 60 per cent of households put together. Moreover, in terms of wealth the data demonstrates even greater inequality:

‘The top 1 per cent of households also account for 33 per cent of net worth, greater than the bottom 90 per cent of households put together. It gets better (or worse, depending on your political stripe) – the top 1 per cent of households account for 40 per cent of financial net worth, more than the bottom 95 per cent of households put together.’

Of the three current plutonomies (namely the U.S.A., the U.K. and Canada), they describe six key drivers that are well-imbedded in these countries:

  • An ongoing technology/bio-technological revolution;
  • Capitalist-friendly governments and tax regimes;
  • Globalisation that re-arranges global supply chains with mobile, well-capitalised elites and immigrants;
  • Greater financial complexity and innovation;
  • Patent protection;
  • The rule of law.

However, far from proposing economic policies to reduce this inequality, the authors advocate maintaining the unequal distribution of wealth:

‘Governments need to be amenable to disproportionately allow/encourage the few to retain that fatter profit share. The Managerial Aristocracy, like in the Gilded Age, the Roaring Twenties, and the thriving Nineties, needs to commandeer a vast chunk of that rising profit share, either through capital income, or simply paying itself a lot.’

The authors observe that in industrialised countries there is a relationship between income concentration (plutonomy) and household savings rates, such that the latter tend to fall in plutonomies. All of which brings the authors to the point of their report:

‘So, Plutonomies exist, and explain much of the world’s imbalances. There is no such thing as the “U.S. Consumer” or “UK Consumer”, but rich and poor consumers in these countries, with different savings habits and different prospects. The rich are getting richer; they dominate spending. Their trend of getting richer looks unlikely to end anytime soon. How do we make money from this theme?’

In August 2008, Citigroup agreed to pay nearly $18 million in refunds and fines to settle accusations by California Attorney General Jerry Brown that it wrongly took funds from the accounts of credit card customers. Citigroup paid $14 million of restitution to roughly 53,000 customers nationwide. A three-year investigation found that from 1992 to 2003 Citigroup used an improper computerised ‘sweep’ feature to move positive balances from card accounts into the bank’s general fund, without telling cardholders. Brown said:

‘Citigroup knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps. When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice.’

Between 1998 and 2014, Citigroup spent nearly $100 million lobbying the US Federal Government. According to the Center for Responsive Politics, as of 2008 Citigroup was the 16th largest political campaign contributor in the US. From 1989 to 2006, members of the firm donated over $23,033,490, 49 per cent of which went to Democrats and 51 per cent of which went to Republicans. Matthew Vadum, a senior editor at the conservative Capital Research Center, acknowledged these figures, but pointed out that Citigroup had been ‘a long-time donor to left-wing pressure groups’. Referring to a Capital Research Center Foundation Watch 2006 study of Fortune 100 foundation giving, he pointed out that during the tax year 2003 Citigroup’s foundation gave: ‘20 times more money to groups on the left than to groups on the right’.


As a result of the subprime mortgage crisis for which Citygroup bears a large share of the responsibility, $8.3 trillion in pension funds, property value and savings vanished from the US; 8.5 million people lost their jobs and 6 million people lost their houses; yet not a single banker went to jail. Members of US minority groups received a disproportionate number of subprime mortgages, and so have experienced a disproportionate level of the resulting foreclosures, with a study commissioned by the American Civil Liberties Union on the long-term consequences of these discriminatory lending practices found that the housing crisis will likely widen the wealth gap between blacks and whites for the next generation.

UK banks were bailed out by the British taxpayer to the tune of £850 billion courtesy of our government; yet 10 years after the crash £10 billion out of the £19 billion in bonuses handed out across the country last year went to those working in financial services. Meanwhile, promises by Theresa May notwithstanding, the rest of us are still living under austerity. The UK has the lowest share of public spending of any major capitalist nation, including the USA. The impact of changes to tax and benefits has hit – and will increasingly hit – the poorest harder, with a further 2.3 million people predicted to be living in poverty as a result by 2020. 80 per cent of the gains from cuts to income tax go to the wealthiest half of households, while the poorest third will shoulder two-thirds of the government’s cuts to benefits.

In 2017 the wealthiest 1 per cent of our population of 65 million people owned nearly 24 per cent of the UK’s total wealth: equivalent to that of the poorest 55 per cent, and more than 20 times the wealth of the poorest 20 per cent. The richest 10 per cent of our population owns 54 per cent of the national wealth, with the poorest 20 per cent owning just 0.8 per cent, and the poorest 40 per cent just 14.6 per cent of wealth – the lowest proportion of any Western country. Just 34 per cent of the population owns the UK’s £9 trillion of private wealth, with the remaining 66 per cent holding no positive financial assets. The UK now has 145 billionaires, the most per capita of any country in the world, including the US, 93 of whom list London as their home; and the wealth of the UK’s richest 1000 people has reached £724 billion, up from £450 billion just five years ago. By comparison, the wealth of the poorest 40 per cent of the UK population, 26 million people, is £567 billion. 21 per cent of the population, 13.4 million people, are living in relative poverty – that is, they earn less than 60 per cent of the median income; and a further 17 per cent, 4.5 million households, are living in fuel poverty – meaning that to heat their homes they have to fall below the poverty line. Despite having the fifth largest economy in the world by GDP, 1,333,000 provisions of three days’ worth of emergency food were handed out at food banks in Britain in 2017-18; there has been a 71 per cent increase in hospital admissions for people suffering from malnutrition; cases of scarlet fever have doubled in recent years, and we have the fifth highest infant mortality rate in Europe.

Investment in London

In February 2018 Citigroup announced it was expanding the network of its Global Innovation Labs with the opening of a new hub in London. Headquartered at the WeWork offices in Moorgate, Citigroup’s London Innovation Lab will initially employ 75 technologists from a variety of backgrounds with a focus on software development skills across a wide range of sectors and disciplines. The London Lab will also host the EMEA operations of Citi Ventures, the team in charge of venture capital investing and external partnerships driving innovation.

The London Lab will support Citigroup’s Markets and Securities Services business globally with a focus on building competitive advantage for clients through solutions leveraging advanced technologies, including data science and visualisation as well as high performance computing. Paco Ybarra, Global Head of Markets and Securities Services, said.

‘The financial services industry has historically been a large user of technology. We have always invested heavily in digital, but what we are seeing now is a step-change in both the investment we dedicate to technology and the pace of the evolution. The addition of London to our network of Global Innovation Labs highlights our commitment to the UK as a strategic hub for innovation.’

Citigroup’s sponsorship of the Evening Standard’s Progress 1000 list is one way of advertising and preparing the ground for this investment. The list of 1,000 people is published annually by The London Evening Standard, a week-day newspaper owned by the Russian businessman and tax-exile, Evgeny Lebedev, and edited by George Osborne, the former Conservative Chancellor of the Exchequer responsible for the austerity programme. Now in its twelfth year, the Progress 1000 list includes individuals from a range of industries, including business, technology, science, politics, design, architecture, culture and the arts. Writing of this year’s list, George Osborne said:

‘Our Progress list this year celebrates the diversity of Londoners – the brilliant people, some born here and others who have moved here, who together make our city so exciting. It is a roll call of talent and a rebuff to all those who want to shut Britain off from the world and close our doors to the future.’

Multiculturalism, and the unimpeded movement of capital and employees this ideology accommodates, is the theme of this year. Topping the 2008 list, accordingly, is Sajid Javid, the former Head of Credit Trading, Equity Convertibles, Commodities and Private Equity Businesses in Asia for Deutsche Bank in 2006, and the current Home Secretary responsible for implementing the Conservative government’s ‘hostile environment for immigrants that last month denied full citizenship for members of the Windrush generation. Other figures in the top-ten include Cressida Dick, the Commissioner of the Metropolitan Police Service, who in 2005 was the officer in command of the fatal shooting of Jean Charles de Menezes at London’s Stockwell Underground Station; Kamal Ahmed, the newly-appointed Editorial Director of the BBC, whose Conservative Party-biased coverage accounts for 75 per cent of our television, 85 per cent of our radio and 50 per cent of our online news and current affairs; and William Shu, the US businessman and co-founder and CEO of Deliveroo, the British online food delivery company based in London that has pioneered the use of zero-hours contracts that pay workers below the minimum wage while denying them their employment rights and benefits. Javid is of Pakistani descent, Shu’s parents were Taiwanese, Ahmed’s father was Sudanese, and Dick has just recently come out as gay; but none of their credentials as examples of London’s diversity has hindered their allegiance to the monopoly capitalism and political hegemony that has made this the most unequal of cities in the Western world. We’re not quite sure how these things work, or who did the nominating, but expected to be among the other 996 names on the Progress 1000 list announced tonight is that of Geraldine Dening, co-founder of Architects for Social Housing.

Architecture is Always Political

And so it turned out. It’s an odd list of architects for ASH to be on, including as it does Foster + Partners and Rogers Stirk Harbour + Partners, two of the architectural practices most identified with the plague of offshore investment opportunities for global capital masquerading as homes to which so much of Inner London’s land is being handed over by our local authorities; not to mention Alison Brooks Architects and dRMM Architects, both of which are complicit in the estate demolition programme that is clearing London’s land for properties unaffordable to either rent or buy by the people currently living on it; and of course no-one resisting the social cleansing of London wants to be on a list that includes Patrik Schumacher of Zaha Hadid Architects; but for reasons still unclear to us, Geraldine Dening of Architects for Social Housing is on the Evening Standard’s list of London’s ‘most influential people 2018’. Now we know what it’s like to be the token working-class black girl in a costume drama of posh white birds. Still, at least Paul Karakusevic, another architect knee-deep in council estate rubble, didn’t make an appearance as Mr. Darcy.

But it’s nice to think of the architectural press, which for four years has uniformly ignored everything ASH has done, grinding their teeth at this small token of recognition.* Indeed, we ran into someone I won’t identify here from the London Festival of Architecture, and they told us that several councils and property developers had told them that they wouldn’t contribute funds to the LFA if it continued to promote ASH events like Open Garden Estates. I’m very happy to report that the LFA rejected these attempts to buy them and censor ASH. We also met Eva Franch i Gilabert, the new Director of the Architectural Association, and offered to introduce its rarefied atmosphere to what’s going on in London’s housing. And we also met Muhamed Hashi, a Labour councillor for Stockwell and creator of the Brixton soup kitchen who himself lives in one of Lambeth’s estates and was interested in ASH’s design alternatives to the council’s 6-estate demolition programme.

Perhaps best of all, though, was my conversation with a group of slick-looking business suits. I asked them what nomination category they were in, and one of them rather sheepishly said: ‘None, we’re from Citigroup’. I wiped the hand that had shaken his on my trousers and told him that, as one of the banks most responsible for the subprime mortgage crisis that was the excuse for the austerity programme that has decimated public expenditure in the UK over the past decade, Citigroup had an image problem in London that sponsoring a jamboree like the Progress 1000 list won’t make us forget. He agreed. So I told him that in a city in which the biggest political issue is the crisis of housing affordability the best way to address this is to fund the construction of thousands of homes for social rent. He gave me his card, and I’ll be writing to him today to remind him of our conversation.

So how did we manage to get into so many conversations in a dark room with blaring music and a packed bar? Well, Geraldine and I wore matching T-shirts with ‘Architecture is always political’ on the front. Apart from making us stand out in the gowned and suited crowd, it was a bit like walking a small dog in a park, and gave everyone the chance to enquire what was written on on our shirts and who we were. In fact, I think ASH might have pioneered the use of printed T-shirts to increase the efficiency of what Patrik Schumacher once called ‘24/7 networking at key parties and amazing multiplying events’, so expect to see them at future palm-pressings like this.

The dubiousness of the associations aside, congratulations to Geraldine, who works extremely hard to keep ASH afloat, and whose pioneering design work is long overdue the recognition it deserves.

* The following week Archdaily published an article on ‘the 30 most influential architects in London’ based on the Evening Standard’s Progress 1000 list. Every architect has a list of their projects and a photograph of one of their designs. Every architect except one.

Architects for Social Housing

Architects for Social Housing is a Community Interest Company (CIC). Although we do occasionally receive minimal fees for our design work, the majority of what we do is unpaid and we have no source of public funding. If you would like to support our work financially, please make a donation through PayPal:

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