Citigroup Doesn't Deny Prince Exit as Shares Drop 31% (Update5)

By Yalman Onaran and Hugh Son


Nov. 4 (Bloomberg) -- The crisis of leadership at Citigroup Inc. may come to a climax this weekend amid widespread speculation that Chief Executive Officer Charles O. ``Chuck'' Prince III will resign, undermined by widening losses from bad mortgage debts and disgruntled shareholders who have suffered a 31 percent loss in the market capitalization of the largest U.S. bank.

Just a week after New York-based Merrill Lynch & Co. ousted Stan O'Neal, Citigroup provided no comment on front-page stories throughout the U.S. that said Prince, 57, will step down.

``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, said Nov. 2.

Citigroup's board will hold an emergency meeting this weekend, the Wall Street Journal reported, citing unidentified people familiar with the situation. Leah Johnson, a Citigroup spokeswoman and member of the New York-based company's management committee, declined to comment today.

The bank is ``highly likely'' to name Robert E. Rubin, chairman of its executive committee and a former Treasury Secretary, as 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.

Joining Goldman

Born in New York City, Rubin, 69, is a former trader who worked in risk arbitrage and helped build Goldman Sachs Group Inc.'s bond business in the mid-1980s.

He started out as a lawyer in 1964 at Cleary, Gottlieb, Steen & Hamilton in New York after receiving a bachelor's degree in economics from Harvard College and a law degree from Yale Law School. Two years later, he joined Goldman as an associate. He became co-chief operating officer in 1987 and co-chairman in 1990.

In 1993 he joined former President Bill Clinton's administration as assistant to the president for economic policy. In January 1995 he became Treasury Secretary, and he held the post until July 1999. Four months after stepping down, he was tapped by Citigroup's then-co-chairmen, Sanford ``Sandy'' Weill and John Reed, to chair the bank's executive committee, a role he still holds.

Rubin said at the time that he ``did not want to be, and would not be, a CEO.''

Stockholder Pressure

Citigroup, the biggest U.S. bank by assets reported $6.5 billion in writedowns and losses in the third quarter, casting doubt on the length of Prince's tenure.

``The board may have simply reached the point where they can't take the pressure from stockholders and they have to remove him,'' Punk Ziegel & Co. analyst Richard Bove said in an interview Nov. 2.

The Securities and Exchange Commission is looking into how Citigroup accounted for certain transactions in a banking- industry rescue plan, the Journal reported yesterday, citing people familiar with the matter. Specifically, it's reviewing whether the company properly accounted for $80 billion in structured investment vehicles, the newspaper said, citing one of those people.

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.

The company's SIV accounting is ``in thorough accordance with all applicable rules and regulations,'' Pretto told the newspaper.

Stock Decline

Citigroup rose $1.31, or 3.5 percent, to $39.04 in extended trading Nov. 2, after falling 78 cents, or 2 percent, in New York Stock Exchange composite trading. The company's shares have lost 32 percent this year, compared with a 6 percent gain in the S&P 500 Index over the same period. They are trading at their lowest since May 2003, five months before Prince took over as CEO.

Rubin may be asked to serve temporarily as CEO, Dow Jones reported Nov. 2. Rubin is ``reluctant'' to take the job, the news service said.

Other possible replacement candidates, according to the Journal, include Richard Parsons, a Citigroup board member who is expected to step down as CEO of Time Warner Inc. later this year, and NYSE Euronext CEO John Thain.

The best way for the company to return value to shareholders is to break into three separate companies, a consumer bank, an investment bank and a wealth-management brokerage, William Smith, who manages about $80 million as president of Smith Asset Management, said in an interview Nov. 2.

Close Chapter

``They've got to put a close to this chapter, they've got to put some morale back into the company,'' he said.

Smith said Citigroup Chief Financial Officer Gary Crittenden is capable of overseeing the dismantling and that Sallie Krawcheck, head of the global wealth management division, could run that company afterward.

Banks, securities firms and insurers have declined on concern that more writedowns and losses lie ahead for their holdings of bonds and securities backed by home mortgages, as well as corporate loans. The worst housing slump in 16 years has led to record U.S. foreclosures and brought trading in some mortgage bonds to a standstill as their value fell.

Prince would join a growing list of investment bank executives who have lost their jobs because of losses in the fixed-income markets. UBS AG, the biggest Swiss bank, dismissed CEO Peter Wuffli in July and said earlier this month that finance chief Clive Standish and investment-banking head Huw Jenkins were stepping down. Others ousted include Bear Stearns Co-President Warren Spector and Citigroup Inc. trading head Thomas Maheras.

Under Fire

Other chief executives who have come under fire include Bear Stearns Cos.'s James ``Jimmy'' Cayne. The Journal, in a front page story earlier this week, said he spent 10 of 21 working days in July outside the office while two of the company's hedge funds collapsed. Cayne denied that he ``engaged in inappropriate conduct'' in a memo sent to employees.

Prince succeeded Weill as CEO of Citigroup in October 2003. He cast aside Weill-style acquisitions and staked Citigroup's future on organic growth, or getting bigger by enlarging existing businesses. Prince also cranked up consumer banking in the U.S. and expansion overseas.

Citigroup, which has 327,000 employees, offices in more than 100 countries and $2.2 trillion in assets, marked Prince's fourth anniversary as chief executive officer on Oct. 1 with somber news for its employees and stockholders.

That day, Citigroup said third-quarter profit fell about 60 percent because of ``weak'' credit markets and losses on leveraged loans and mortgage-backed securities. The bank said it would write down $1.4 billion before taxes on leverage finance commitments, and that it had lost $1.3 billion on subprime assets and about $600 million in fixed-income trading.

Citigroup's board is also expected to discuss this weekend whether the company should update the amount of writedowns to reflect the decreasing value of certain securities, the Journal said.