[DEBATE] : Rubin becomes Citigroup chairman amid mounting losses
Riaz K. Tayob
riazt at iafrica.com
Mon Nov 5 08:31:39 GMT 2007
Rubin becomes Citigroup chairman amid mounting losses
Submitted by cpowell on 05:12PM ET Sunday, November 4, 2007. Section:
By Madlen Read
via Yahoo News
Sunday, November 4, 2007
NEW YORK -- Citigroup Inc. Chairman and Chief Executive Charles Prince,
beset by the company's billions of dollars in losses from investing in
bad debt, resigned Sunday and is being replaced as chairman by former
Treasury Secretary Robert Rubin.
The nation's largest banking company announced Prince's widely expected
departure in a statement following an emergency meeting of its board.
Citi also said Sir Win Bischoff, chairman of Citi Europe and a member of
the Citi management and operating committees, would serve as interim
CEO. Rubin, a former co-chairman of Goldman Sachs & Co., has served as
the chair of Citi's executive committee, and it was also expected he
would take a greater role in leading the company.
In a separate statement, Citi, which took a hit of $6.5 billion from
asset writedowns and other credit-related losses in the third quarter,
said it would take an additional $8 billion to $11 billion in writedowns.
"It was the honorable course, given the losses we are now announcing,"
Rubin said of Prince's resignation in an interview with The Associated
Prince joined former Merrill Lynch & Co. CEO Stan O'Neal, who resigned
from the investment bank last month, as the highest-profile casualties
of the debt crisis that has cost billions at other financial
institutions as well.
Prince, 57, became chief executive of Citigroup in October 2003. Many
shareholders criticized him openly for much of his tenure, as
Citigroup's stock lagged its peers while Prince executed what was called
an umbrella model of corporate organization, with several separate lines
of business. Shares closed Friday at $37.73, about 20 percent below
where they were when Prince became CEO.
Prince's position looked especially shaky after the company on Oct. 1
estimated that third-quarter profit would decline about 60 percent to
some $2.2 billion after seeing nearly $6 billion in credit costs and
write-downs of overly leveraged corporate debt and souring home
mortgages. At that time, Prince said the bank's earnings would return to
normal in the fourth quarter.
But when Citigroup released its third-quarter results two weeks later,
the write-downs and credit costs exceeded $6 billion, and Chief
Financial Officer Gary Crittenden indicated the outlook going forward
wasn't as upbeat as Prince had predicted.
Citigroup wasn't alone in its third-quarter turmoil. When borrowers with
poor credit stopped paying their mortgages, many banks not only had to
take losses on those subprime mortgages, they also saw instruments in
their portfolios backed by mortgages plummet in value.
But Citigroup's stumbles were particularly grievous, given the bank's
size, history and CEO, who had been telling shareholders for years to
give his strategy a chance. Even in October, Prince said in a call to
analysts: "I think any fair-minded person would say that strategic plan
The umbrella model that Sanford I. Weill created and Prince touted
looked like a giant mess compared to its conglomerate counterpart
JPMorgan Chase & Co. -- now led by Weill's former protege, Jamie Dimon.
JPMorgan's writedowns were smaller, and strength in asset management,
security services, card services, and commercial banking units made up
for weakness in other areas. Having cut costs and built up cash reserves
in previous quarters, the bank was better prepared for a tough lending
Meanwhile, Citigroup's expenses outweighed revenues, it botched its
fixed income trading operations, and its cash-to-debt ratio dipped.
The anger toward Prince was so intense that during a conference call
last month, Deutsche Bank analyst Mike Mayo told Prince that investors
wanted a significant change in management. His supporters, though, argue
that he was dealt a tough hand when his predecessor Weill gave him the
reins, and that matching the hefty profit gains Citigroup saw in the
1990s would be difficult for any CEO.
Weill was a fairly popular leader, building Citigroup through various
mergers and acquisitions over the course of about 20 years into the huge
conglomerate that it is today. When he stepped down as chairman in 2006
and handed the position to Prince, Weill -- now a board member -- got
two standing ovations from shareholders and a big blue banner from
employees that read, "Thank you, Sandy!"
Prince, whose compensation came to nearly $25 million last year, is
leaving under a much darker cloud.
Citigroup, along with JPMorgan Chase & Co. and Bank of America Corp., is
trying to create a fund to buy up distressed securities in the tight
credit markets, a move some industry experts say smacks of desperation.
Citigroup is the only major U.S. bank to manage "structured investment
vehicles," or SIVs, and may end up having to take losses on them because
demand for the assets that fund them has dropped.
Rubin, 69, after 26 years at Goldman Sachs, became President Bill
Clinton's chief economic adviser in 1993 before leading the Treasury
Department. His experience steering the U.S. economy during the Mexican
and Asian financial crises could come in handy as Citigroup attempts to
navigate the tight credit markets.
Bischoff was the chairman of the British investment bank Schroders PLC,
then joined Salomon Smith Barney Inc., a subsidiary of Citi, when it
acquired Schroders. He began his current position in May 2000.
"There's no change of strategy that we see, actually, going forward,"
Bischoff said, noting that the company still plans to focus on
international expansion, at least until a new CEO is chosen.
It was not known whether Bischoff was in the running to replace Prince
as CEO. Before Sunday's meeting, many ideas for Prince's replacement
were floated by industry watchers; one name that has come up often is
John Thain, who was once president of Goldman Sachs and is now CEO of
But it may take more than a figurehead change to restore shareholders'
confidence in Citigroup, considering how much bad debt it has on its
hands and its hard-to-shed image of a rule-flouting old boys club.
In 2004 Citigroup had to close its Japan Private Bank amid allegations
of improper activities. And in January former head of global wealth
management Todd Thomson resigned, reportedly having been forced out for
extravagant spending and dealings with CNBC anchor Maria Bartiromo.
Citigroup did a minor reshuffing in early October, combining its
investment banking and alternative investments businesses into one unit
led by Vikram Pandit, who had led Citigroup's alternative investments
unit. Tom Maheras, co-CEO of the investment banking unit, left.
At the time, Rubin and Saudi Arabian Prince Alwaleed bin Talal --
Citigroup's biggest individual shareholder and once a critic of Prince
-- expressed their support for the bank's embattled CEO.
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