In the Hot SeatAgain

Why didn't Mike Armstrong recognize the signs?

The last credit crunch was sparked by the telecom bust of 2000, while the current one started with the subprime mortgage meltdown. One person who figured in both: Citigroup Director C. Michael Armstrong, AT&T's chairman and chief executive from 1997 to 2002.

As chair of Citi's audit and risk-management committee, Armstrong is charged with ensuring that management's major moves aren't overly aggressive. The position, says Deutsche Bank analyst Michael Mayo, "helps set the risk appetite for the entire firm."

But from the boardroom to the trading floor, Citi failed to grasp the full extent of its subprime liabilities. Now the bank could see as much as $21 billion in writedowns, according to analysts. It has lost $100 billion in market value since May, fueling cries for Citi to break up.

Armstrong, 69, has faced similar problems before. At AT&T, he binged on nearly $120 billion in cable acquisitions. But amid the bust, the debt-burdened telecom had to dump those assets at fire-sale prices. It offloaded its cable empire to Comcast at a $40 billion discount in 2002.

Now, given Citi's problems, the bank is bound to hear calls for a board shakeup. Armstrong's links to former Citi CEO Sanford I. Weill won't help. Weill, who served on AT&T's board during Armstrong's tenure, once leaned on Citi analyst Jack Grubman to up his rating on AT&T—an embarrassment for both companies. Armstrong declined to comment.

By Roben Farzad

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