Citigroup director Robert Rubin resigns as adviser...

Source: Mail.com

Citigroup board member Robert Rubin, who has drawn heavy criticism for his role at the embattled bank, has resigned as a senior adviser.

Rubin, 70, will continue to serve as a board director until his term expires at the next annual meeting in the spring, Citigroup said.

As Citigroup's stock plunged over the past year, the veteran of Wall Street and Washington came under fire from critics who believed he should have had a more active role in preventing the bank's recent problems. Citi's predicament drove it in November to seek federal assistance.

A person at Citi close to the situation, who spoke on condition of anonymity because he was not authorized to speak for Rubin, said "there was no inside pressure" for Rubin to leave Citigroup. "It was his feeling that the time was right," the person said. He added that there was no government pressure, either.

Rubin was U.S. Treasury Secretary under President Bill Clinton. For several decades before that, he worked at the Wall Street firm Goldman Sachs Group Inc. But his experience didn't keep Citigroup from taking on a massive amount of risk that relied on the housing market staying afloat.

"Robert Rubin, in my opinion, spent a decade neglecting his duties as a director, just judging by their performance," said Christopher Whalen, managing director of Institutional Risk Analytics. "It's the job of the board to supervise the managers."

"He had embraced a riskier strategy for a bank that was ... already a high-risk bank," Whalen said.

Citigroup was hit particularly hard by the housing market downturn because the bank was heavily invested in mortgages and other loans. The company has reported four straight quarters of losses, and is expected to post yet another loss when it releases fourth-quarter results later this month.

Even before the economy started tanking, many shareholders had complained that Citigroup was too huge, and lagging its peers. Calls for a breakup have been going on for years, and have grown louder now that the government has had to pump so much money into the ailing company.

Citigroup is reportedly in talks with another bank, Morgan Stanley, to merge its own wealth management business -- Smith Barney -- with Morgan Stanley's. According to media reports Friday, Morgan Stanley would have the majority stake in the new entity.

If Morgan Stanley ends up buying Smith Barney, it "sounds like the beginning of a liquidation," Whalen said.

"Citi is under enormous pressure to downsize right now," said Bert Ely, a banking industry consultant in Alexandria, Va. After Citigroup received an extra dose of government funding in November, he said, "my sense is that the pressure has been increasing to accelerate the process."

So far, Citigroup has gotten $45 billion in cash investment by the Treasury Department, and a government backstop for up to $306 billion in loans and securities backed by mortgages.

Over the past six months, Rubin has slowly pared back his role at Citigroup, after serving as chairman for about a month following the ouster of former chairman and CEO Charles Prince in November 2007. Win Bischoff became Citi's chairman in December 2007, and investment banking head Vikram Pandit became CEO.

In August 2008, Rubin gave up his title as head of the board's executive committee, and became a "senior counselor" instead.

Leaving Citigroup, where he has worked for nearly 10 years, "is not a decision that I have come to lightly," Rubin said in a letter released by the bank. "But as I enter my 70s and with all that is now in place at Citi, I believe the time has come for me to make these changes."

He also wrote: "My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today."

Citigroup shares fell 41 cents, or 5.7 percent, to $6.75. Morgan Stanley shares were up 24 cents to $19.06.