Charles O. Prince III:

Citigroup Chief Exec to Resign in
Wake of $US5.9 Billion Writedown

Sydney Morning Herald (Australia) 4nov2007

THE embattled head of Citigroup, the global banking giant, told directors that he would resign from the bank after an emergency meeting at the weekend in the wake of a $US5.9 billion ($6.4 billion) writedown and sharp drop in profit, people briefed on the situation say.

Charles O. Prince III, 57, the chairman and chief executive, has accepted responsibility for the bank's disappointing third quarter and said it would be better for the bank if he left, they said.

At the meeting scheduled for yesterday, directors were also expected to discuss the possibility of another write-off, just weeks after announcing large losses related to the subprime mortgages and credit market turmoil.

A search committee would begin looking for Mr Prince's successor immediately, said a person briefed on the situation. "The entire organisation is in uproar and people have been looking for leadership," said a Citigroup executive.

"The organisation is waiting for something. At some point, the company is worse off or better off without the guy. That collective point has come and passed."

Mr Prince's departure will end a tumultuous four-year reign at the bank, where he won over the board on an aggressive growth strategy but failed to convince many of his employees and deliver results to investors. It will also set off new calls to dismantle Citigroup's empire.

News of Mr Prince's plans to resign were first reported by The Wall Street Journal online.

His exit will be a blow to the legacy of Sanford Weill, Citigroup's former chairman and a founder who championed the idea of a "financial services supermarket" that would bring consumer banking and investment banking under one umbrella. Mr Prince was his protege and hand-picked successor.

He will leave with vested stock holdings valued at $US94 million on top of the roughly $US53.1 mil lion in pay he took home in the last four years, said James F. Reda & Associates, a compensation consulting firm, and Equilar, a data provider. He also has a pension worth $US1.74 million and another 1 million stock options, which have no current market value because of the stock's sharp decline.

Mr Prince will become the second chief executive to lose his job in the wake of the subprime mortgage problems. Last week, the chairman and chief executive of Merrill Lynch, Stanley O'Neal, was forced to retire after the brokerage firm reported an $US8.4 billion writedown, the largest in its history, and an unauthorised overture to merge with its rival Wachovia, that angered board members.

Though Mr Prince has been under pressure for months, he has had a similarly swift downfall. In early October Citigroup reported its $5.9 billion writedown and a 57 per cent drop in third-quarter profit. The earnings report and the size of the writedown renewed speculation that Mr Prince would run into trouble.

But Citigroup's biggest shareholder, the Saudi Prince Alwaleed Bin Talal, and two of its most influential directors quickly came to his support. "Now is not the time to be saying, 'Do we change course, or do we change captains?"' said Richard Parsons, Time Warner's chairman and chief executive, who heads the Citigroup's personnel and compensation committees.

Robert Rubin, the former Treasury secretary and chairman of the bank's executive committee, suggested that Mr Prince would "be the CEO at the annual meeting five years from now and as long past that as he wants to be."

Yet the problems continued to mount. On Thursday, Meredith Whitney, an analyst at CIBC World Markets, downgraded Citigroup stock in anticipation of heavier losses from its exposure to mortgage-related securities in its investment bank and souring home and other loans in its big consumer operation. She also suggested that a $US30 billion capital shortfall might cause the company to cut its dividend or sell assets, which would hamper future profit growth.

The report sent Citigroup's shares down $US3.39 or 7 per cent; they fell an additional US78c on Friday. The shares are down almost 18 per cent for the year, much of that decline coming in the last four weeks.

Besides being Mr Weill's protege, Mr Prince was his chief lawyer and helped engineer a series of big deals that transformed Citigroup into a sprawling banking giant.

Since taking over in October 2003, Mr Prince has touted an ambitious strategy that called for expansion overseas and internal growth. Earlier this year he announced a restructuring to rein in expenses.

Despite a few signs of progress, investors grew frustrated with the results. Mr Prince made untimely comments and several bad personnel decisions, and the recent losses raised questions about his attention to risk.

His will leave Citigroup without a clear successor.

The New York Times

source: 4nov2007

A Rate Cut, a Rally and a Plunge

JEFF SOMMER / New York Times 4nov2007

The Federal Reserve cut short-term interest rates last week, but the broad stock market fell anyway, pulled down by disappointing earnings and concern about the state of the overall economy.

On Wednesday, the Fed’s rate-cutting set off a one-day rally, but stocks plunged steeply the next day, as Exxon Mobil’s earnings underwhelmed Wall Street and analysts at CIBC downgraded Citigroup’s debt. Citigroup’s shares dropped 11.5 percent for the week, the biggest decline among the Dow industrials. Microsoft gained 5.8 percent for the index’s best weekly performance, as technology shares outpaced financials. Oil rose to new highs, the dollar weakened and gold soared.

For the week, the Dow Jones industrial average lost 211.60 points, or 1.5 percent, to close at 13,595.10. The Standard & Poor’s 500-stock index lost 25.63 points, or 1.7 percent, to close at 1,509.65. The Nasdaq composite index gained 6.19 points, or 0.2 percent, to close at 2,810.38.

The yield on the 10-year Treasury note fell to 4.32 percent from 4.40 percent the previous week.

source: 4nov2007