/ 4 November 2007

Citigroup CEO Prince to resign

Citigroup chief executive Charles Prince plans to resign this weekend, the Wall Street Journal said on Friday, as the widening subprime mortgage crisis brings to an end the reign of Sanford Weill’s troubled successor.

The largest United States bank by assets plans to hold an emergency board meeting on Sunday, at which Prince will step down, the newspaper said, citing people familiar with the situation.

Citigroup spokesperson Michael Hanretta declined to comment. Prince did not immediately return a call to his office.

Speculation that Prince’s hold on his job was tenuous has swirled for weeks, after a $6,5-billion third-quarter write-down fed fears of more losses to come, dragging Citigroup’s shares to a four-and-a-half year low.

”Prince had told investors this would be the year of no excuses. It unfolded into a year of lots of excuses,” said Thomas Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, which invests more than $3-billion and owns Citigroup shares.

Prince’s departure would be the second of a top Wall Street executive in less than a week, following Tuesday’s ouster of Merrill Lynch chief executive Stan O’Neal, following an $8,4-billion write-down.

A lawyer by training, Prince is widely credited with having addressed Citigroup’s many legal and regulatory problems after he replaced Weill in October 2003.

But he has struggled to consistently boost revenue faster than costs, raising worries about whether it has sufficient capital to grow and boost profitability.

It was not immediately clear who might replace Prince at Citigroup. Analysts have said the bank has few, if any, candidates ready to step in now.

Robert Rubin, the former Goldman Sachs chief and US Treasury Secretary who chairs Citigroup’s executive, was being floated as an interim replacement, but is reluctant to take over, the Journal said.

”He may not want the job, but if you are a Citigroup stockholder, you would wish he would take over,” said James Armstrong, president at Henry H Armstrong Associates, which does not own the bank’s shares.

Other possibilities have included John Thain, another former Goldman executive who now runs NYSE Euronext.

Hard times

Citigroup said on October 15 that third-quarter profit slid 57% as losses mounted in areas including subprime mortgages and corporate loans to junk-rated companies.

Those results included $6,5-billion of losses and write-downs in subprime mortgage bonds and other assets. This, combined with about $25-billion of acquisitions over the last year, left Citigroup’s capital below its internal targets.

If Prince leaves, another big write-down is possible, as a new chief executive clears out assets with even a whiff of trouble, said a portfolio manager who asked not to be named.

Citigroup may also be broken up. Prince has resisted this, but many portfolio managers believe Citigroup is unwieldy. The bank operates in more than 100 countries, and is already cutting 17 000 of its more than 300 000 employees.

”It has too many moving parts,” Armstrong said.

CIBC World Markets analyst Meredith Whitney on Thursday said Citi may need to raise more capital through measures, including dividend cuts and assets sales.

Citigroup shares have fallen 32% this year, closing on Friday down 78 cents at $37,73. They rose to $39,01 after-hours on news of Prince’s pending departure. The cost of protecting the company’s debt against default has shot up to levels that imply the bank’s credit ratings should be cut.

Marshall Front, chairperson of Front Barnett Associates in Chicago and a Citigroup shareholder, said the bank’s shares could rise 10% if Prince leaves.

Russo said: ”It has been a long and tiring time for Citigroup stock investors.” – Reuters