Citigroup takes on new guru of cost-cutting

Lender recruits co-author of 2007 McKinsey report on subprime mortgage 'opportunities'

PUBLISHED : Saturday, 13 April, 2013, 12:00am
UPDATED : Saturday, 13 April, 2013, 4:51am

Citigroup, the bank that's cutting 11,000 workers and shutting branches, has hired David Chubak from McKinsey to help oversee cost-cutting.

Chubak, 32, will be head of productivity and report to chief executive Michael Corbat, according to an internal memo.

He was previously was a partner in the global bank and securities practice at McKinsey, a New York-based consulting firm.

Mark Costiglio, a Citigroup spokesman, confirmed the memo's contents.

Corbat, 52, who took over in October after the ousting of Vikram Pandit, has pledged to make Citigroup more efficient.

Last month, he said the New York-based lender might exit or pull back from businesses in countries where results are "unsustainable", which could mean more branch closings and dismissals beyond those already announced by the third-biggest United States bank.

"David will work closely with senior management and their teams to redesign processes, eliminate redundancies and drive efficiencies," Corbat said in the memo. "He will also help to set challenging productivity goals for all of our products, geographies, and functions."

Corbat has already moved to change how Citigroup manages expenses. In January, he reduced the duties of then-chief administrative officer Don Callahan, shifting his responsibility for "expense management" and the operations and technology for some of the bank's biggest businesses to other executives.

Mark Rufeh, head of expense management and re-engineering who reported to Callahan, left the company.

At McKinsey, Chubak was part of teams that worked on projects for Citigroup, according to one person familiar with the matter. He has contributed to McKinsey reports since 2010 on challenges for credit-card lenders, how payment networks can cut technology costs, and how banks can improve branches.

In June 2007, Chubak co-wrote a report for McKinsey called "Surviving - and prevailing - in the US subprime mortgage market", which looked at the "dramatic shakeout" in the market that gave home loans to borrowers with riskier credit histories.

He and two other McKinsey consultants proposed that even amid a steep slump, the market for the mortgages was "unlikely to disappear", and the report cited as evidence comments by Angelo Mozilo, chief executive of Countrywide Financial, about how most subprime borrowers were still current on their repayments while government-sponsored Fannie Mae and Freddie Mac planned to increase their investments in the mortgages by tens of billions of dollars.

"Despite recent dramatic downturns … subprime-mortgage opportunities still abound for players that are willing to wait for an upturn and can stomach the risks," Chubak helped to write.

The US seized Fannie Mae and Freddie Mac in 2008 as subprime mortgages soured. Taxpayers had to provide about US$188 billion of bailout funds to the two firms, and Countrywide's practices were blamed by regulators for fuelling the downward spiral.