Tags: Citigroup, Robert Rubin
Stocks: CEO

Citigroup’s CEO Prince Opts to Retire; Robert Rubin Steps in as Chairman

By , Money Morning •

From Staff Reports

The leadership crisis at Citigroup Inc. (C) finally reached climax proportions late yesterday (Sunday) after the bank announced that embattled Chief Executive Officer Charles O. "Chuck" Prince III would retire.

Former Treasury Secretary Robert E. Rubin – chairman of the executive committee and a member of the board of directors – will serve as chairman of the board.

In addition, Sir Win Bischoff, Chairman of Citi Europe and a member of Citi’s Business Heads, Operating and Management Committees, will serve as acting CEO.

Prince, 57, has elected to “retire” as chairman and CEO, Citi said late yesterday. The Citigroup board has designated a special search committee to look for a new CEO.

Prince said that “we have made strong progress in our strategy for building for the future, evidenced in the momentum we have achieved in most of our businesses. Nevertheless, it is my judgment that given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as chief executive is to step down. This is what I advised the board.”

It was reported late last week that Prince had offered to step down, which is one explanation for why the big bank’s board of directors met over the weekend for an emergency meeting, according to published reports and sources familiar with the situation.

Just a week after New York-based Merrill Lynch & Co. ousted Stan O'Neal, Citigroup spokespeople late last week declined comments on a rash of newspaper and wire-service stories appearing across the United States that said that Prince would step down.

"We are completely declining to comment," Leah Johnson, a Citigroup spokeswoman and member of the New York-based company's management committee, said yesterday.
But that didn’t lessen the speculation.

"This might become a weekly occurrence, getting rid of a Wall Street CEO," James Ellman, who manages about $200 million as president of Seacliff Capital in San Francisco, told Bloomberg News last week.

The bank was believed "highly likely" to name Robert E. Rubin, the former Treasury Secretary under President Bill Clinton, as its interim chairman today, the New York Times said, citing an unidentified person briefed on the situation. The newspaper said both Rubin and Christina Pretto, a Citigroup spokeswoman, declined to comment.

The Number 1 U.S. bank by assets reported $6.5 billion in write-downs and losses in the third quarter, casting doubt on Prince's ability to run the banking concern.

Stockholder Pressure

Richard Bove, a Punk Ziegel & Co. analyst who is one of the best banking analysts in the country, said on Friday that Citigroup’s board “may have simply reached the point where they can't take the pressure from stockholders and they have to remove him.”

The Securities and Exchange Commission is looking into how Citigroup accounted for certain transactions in a banking- industry rescue plan, the Journal said Friday. Specifically, the SEC is studying whether Citi improperly accounted for an estimated $80 billion in structured investment vehicles, the newspaper said.

The result of the review, still in early stages, could include no action or a referral to the SEC's enforcement division, the Journal said.
Either way you slice it, Citigroup Inc. (C) is in for a world of pain.

Facing a possible $30 billion capital shortfall, the company may be forced to cut its dividend or sell assets, said banking analysts Meredith A. Whitney and Carla Krawiec of CIBC World Markets, in a report released Wednesday night.

If Citi makes either move it’s likely that shareholders would head for the nearest exist sign.

Exodus Already Under Way?

"Since 2006, Citigroup has made $26 billion in acquisitions, taken over $6 billion in recent charges, and increased its dividend against a backdrop off almost no net income growth," Whitney and Krawiec wrote in their research report, downgrading the company’s stock to an "Underperform."

"We believe the stock will be under significant pressure, and could trade in the low $30s," the report also stated.

Citi Currently a Lightning Rod of Controversy

That report intensified resignation calls for the ouster of Prince, especially after Merrill Lynch & Co. Inc. (MER) CEO E. Stanley "Stan" O’Neal was ousted earlier last week.

Citigroup posted a 57% drop in third-quarter earnings. Compounding the problem was where those losses came from: Citi’s fixed-income business, usually a strong suit for the banking-and-finance concern, was a big part of the earnings decline - and included a loss of $1.3 billion related to problems with mortgage-backed securities.

Trying to regain footing after the credit rout slammed lenders around the world, Citigroup, Bank of America Corp. (BAC) and J.P. Morgan Chase & Co. (JPM) agreed to start a fund that would enhance the liquidity of the asset-backed commercial paper (ABCP) market, as well as medium-term notes issued by structured investment vehicles (SIVs). The plan has met with substantial controversy, but the goal of the fund would be to pump liquidity back into the commercial paper markets. Unfortunately, other banks haven’t warmed up to the idea because they don’t trust the assets backing the loans.

A sale of Citigroup assets only legitimizes those fears.

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