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One November morning in 1986, the world learned in the papers that Citicorp was backing a hostile bid by Ronald Perelman for another Citi client, razor-blade maker Gillette Co. "Somebody said that an article had appeared and that it was likely I would be asked about it," Citi chairman John Reed Says. While Reed was still trying to track down the article, Lawrence Small, the head of Citi's institutional bank, popped into his office. The Gillette raid might stir up some criticism, Small ventured. Reed was dismayed; he had heard rumblings about a Perelman financing, but he had not made the time to meet with Citi's Perelman bankers, who had sought an appointment with him to discuss it.
Reed's failure to keep himself fully informed on this highly controversial loan was symptomatic of the bank's attitude toward corporate lending in the 1980s. Citicorp, America's largest commercial bank, now finds itself saddled with an enormous mass of nonperforming commercial loans, some $7.8 billion and counting. Though it was by no means the only bank to overindulge, Citi did manage to pile up more bad loans than any other U.S. bank.
What happened to Citi's credit culture in the late 1980s? For answers, the place to begin looking is at the top. And the predominant image painted by numerous current and former Citibankers is of Reed the invisible man, closeted in an enclave on the second floor of 399 Park Avenue. Senior bankers recall in the 1970s bumping into then-chairman Walter Wriston or then-president William Spencer in the executive dining room. Those encounters were frequently unnerving--they would ask sharp, pointed questions--but often satisfying. Reed almost never eats in the dining room. Indeed, few Citicorp employees beyond a small circle of executives and directors have ever met with him; the multitudes view their leader on videotaped messages he prepares each quarter. To Citibankers, the Oriental rock garden Reed installed off his office suggests not tranquility but deliberate isolation.
This distance from the rest of the bank was both by design and by predilection. Citi is a fantastically complicated organization, and Reed views his job as one of long-range strategic thinking. Unlike Wriston he is not a lender by training. He made his reputation building Citi's formidable retail operation....