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REFILED-UPDATE 1-Ex-Citi CEO dogged by 'dancing' quote
April 8, 2010 / 8:40 PM / 8 years ago

REFILED-UPDATE 1-Ex-Citi CEO dogged by 'dancing' quote

(Refiles to remove extra “the” in first paragraph)

* Citi couldn’t be only bank to stop leveraged lending

* 2007 quote had “nothing to do” with mortgage crisis

(Adds byline, reactions from panel members)

By Maria Aspan

NEW YORK, April 8 (Reuters) - Charles “Chuck” Prince’s infamous comment that his bank was “still dancing” even as the subprime crisis worsened came back to haunt him on Thursday.

The U.S. congressional panel investigating the origins of the worst U.S. financial crisis since the Great Depression pressed Prince about his comment, which has become emblematic of the failure of banks to come to grips with the gravity of the crisis.

The former Citigroup Inc (C.N) chief executive’s explanation seemed to boil down to: it was a race to keep up with competitors who kept loosening lending standards and Citi could not afford to drop out.

“The quote itself related to the leveraged lending business, and I specifically asked the regulators if they would take action in regard to that,” Prince told the Financial Crisis Inquiry Commission.

In July 2007, Prince told the Financial Times that global liquidity was enormous and only a significant disruptive event could create difficulty in the leveraged buyout market.

”As long as the music is playing, you’ve got to get up and dance,“ he said. ”We’re still dancing.

Prince told the commission that, at that time, ”private equity firms were driving very hard bargains with the banks, and, at that point in time, the banks individually had no credibility to stop participating in this lending business.

“It was not credible for one institution to back away from this leveraged lending business,” he said, looking tense and uncomfortable as the commission grilled him. “The regulators had an interest in tightening up lending standards.”

DANCING AND OTHER PASTIMES

Some commissioners, seemingly perplexed by Prince’s explanations, continued to hone in on the issue.

Vice Chairman Bill Thomas even came back with his own version of the “dancing” quote.

“In other words, you weren’t going to be the lemming that stopped and said: ‘I don’t know if I want to keep walking,'” he said.

Thomas also pressed Prince on his claim he had asked regulators to impose limitations on leveraged lending.

“You wanted the regulators to ‘impose,’ so you wanted them to stop you from dancing?” Thomas asked. “Can’t you set up structures inside?”

Other commissioners also returned to the quote in subsequent questions, which added more metaphors to the discussion. Prince even resorted to baseball at one point.

“One firm in this business cannot unilaterally withdraw from the business and maintain its ability to conduct business in the future,” he said. “Like baseball, where none of the players have contracts ... if you’re not engaged in business, people leave the institution.”

Despite the quote’s longevity throughout the subprime lending crisis, Prince insisted it was irrelevant to the discussion.

“This was about leveraged lending. It had nothing to do with the mortgage business,” he said. “It had nothing to do with the CDO business. It had nothing to do with the issues that we’ve been talking about here.”

A few months after the Financial Times interview, in November, Prince resigned. (Reporting by Maria Aspan; editing by Andre Grenon)

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