Subprime Calculus: Citi, UBS Losers; Goldman, Deutsche Winners

According to Bloomberg, there was a banking confessional of sorts in Parliament:

Citigroup Inc., the biggest U.S. bank by assets, lost more money than it made from financial instruments based on U.S. subprime mortgages, a senior company executive said in a meeting at the British Parliament.

William Mills, chief executive officer of Citigroup’s markets and banking division in Europe, said his bank had suffered “reputational damage” from the fallout even though the New York-based company had made “adequate disclosures” to customers who were trading subprime-related securities including collateralized debt obligations.

“Our losses greatly exceeded the profits we made in this field over several years,” Mills said at a hearing of the Treasury Committee today.

Citigroup has been without a CEO since Charles O. “Chuck” Prince III quit last month after the bank announced $8 billion to $11 billion of writedowns on mortgage investments. That may cut fourth-quarter profit by up to $7 billion, the bank said. The company is searching for a new CEO and the candidates include Vikram Pandit, head of Citigroup’s subprime division.

“The end buyers of these instruments were sophisticated institutions that were given the opportunity to review the documents associated with them,” Mills said. “We’ve taken our fair share of losses on this.”

Jeremy Palmer, who runs UBS AG’s investment banking unit in Europe, the Middle East and Africa, told the committee Switzerland’s biggest bank probably also lost more than it made.

Gerald Corrigan, the managing director in charge of risk management at Goldman Sachs Group Inc., said that his bank had fared better than Citi.

“On balance, we probably made money,” Corrigan told lawmakers. “We have had a measure of success in hedging some of our exposure.”

Corrigan said that disruptions akin to the subprime crisis could happen again even if bankers devote “relentless energy” towards preventing them.

“It is the nature of things, sad but true, that these periodic disruptions will occur,” he said. “We have to be honest enough to recognize that as hard as we work at this, sometime in the future another surprise will occur.”

“Mistakes were made, there is no question about that,” said Corrigan.

Deutsche Bank probably made more money from marketing CDOs than it lost, said Charles Aldington, chairman of its London unit.

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