Prince Out At Citigroup; Writeoff Figures Climb
Charles Prince resigned on Sunday as chairman and chief executive of Citigroup, and the bank said it may suffer an $11 billion write-down for subprime losses.
Citigroup said it expects to write down $5 billion to $7 billion after taxes -- roughly three or four months of profit -- for its $55 billion of exposure to U.S. subprime mortgages. The writedown equals $8 billion to $11 billion before taxes, and may rise if markets worsen, the largest U.S. bank said. Citigroup's previous $6.5 billion write-down related to subprime mortgages, loan losses and other debt.
"I am responsible for the conduct of our businesses," Prince said in a memo to employees. "The size of these charges makes stepping down the only honorable course for me to take as chief executive officer. This is what I advised the board."
Robert Rubin, the former Treasury secretary, will assume the role of chairman, while Sir Win Bischoff -- the chairman of Citi Europe and a member of the bank's management and operating committees -- will become interim chief executive.
Citigroup now expects to restore normal capital levels by the end of June 2008. It had previously expected an early 2008 return. The bank said it nevertheless has no plans to cut its 54 cents per share quarterly dividend, a position it reiterated during a conference call with analysts Monday morning.
CIBC World Markets analyst Meredith Whitney on Thursday triggered a 6.9 percent drop in Citigroup's shares after downgraded the institution to "sector underperformer" and has said she received death threats since then. She has said she does not believe Citi will be able to maintain its dividend.
Whitney again questioned Citi officials during the call as to wheter it can maintain its dividend given its large payout ratio.
"We're fully committed to maintaining the dividend at its current level," said Gary Crittenden, city's chief financial officer. "I'm pretty confident in our ability to manage the balance sheet."
Prince's departure ends a tumultuous four-year tenure marked by heavy management turnover, questions over strategy, and mounting losses from bad loans and mortgages. It also comes five days after Merrill Lynch ousted its own chief executive, Stanley O'Neal, following an $8.4 billion writedown.
Meanwhile, shifts in Citi's executive suite may not be over just yet, depending on who gets the nod as new permanent chief executive. CNBC has learned that Vikram Pandit, who heads Citi's investment banking and alternative investment businesses, has told people inside the company that he will quit if Citi selects NYSE Euronext CEO John Thain as its new head.
Pandit, who like Thain has been mentioned as a candidate for the job, is concerned that he would not get a shot at CEO if Thain were selected because the two men are roughly the same age, sources said.
Meanwhile, the US Securities and Exchange Commission is reviewing Citi's accounting for irregularities among a type of funds known as structured investment vehicles (SIVs).
Citi Worries Spark Market Selloff
The emergency meeting came after analysts raised concerns about the banking giant's financial health this week, triggering a selloff in banking and brokerage stocks.
Citi's audit committee also met Sunday, in advance of the emergency board meeting.
A spokesman for Citigroup on Friday declined comment about the content of Sunday's meeting, but the bank's stock rose in after-hour trading. Shares were off 2.6 percent in premarket trading Monday.
Prince has already been under fire for huge write-downs, declining profit and evaporating shareholder value. The analyst comments this week heightened worries about the bank and raised questions about Prince's future as CEO.
Citigroup's stock first got hammered on Thursday after Whitney said that subprime-related losses could force the bank to scramble for capital. Citigroup shares have fallen 32 percent this year, and 17 percent since Prince became chief executive in October 2003. The shares rose early Monday in their Tokyo market debut.
"We believe over (the) near term, Citigroup will need to raise over $30 billion in capital through either asset sales, a dividend cut, a capital raise, or combination thereof," Whitney wrote.
Downgrade Hits Stock
Her downgrade of Citigroup to "sector underperformer" from "sector performer" spurred a decline of as much as 9 percent in the banks shares, sending it to its lowest level since May 2003, five months before Prince took over.
Citigroup's decline sparked a major selloff in the overall stock market, with the Dow Jones Industrial Average ending down 362 points.
Then, on Friday, Deutsche Bank analyst Mike Mayo said Citigroup faces about $4 billion in write-downs in the current quarter, mainly because of subprime mortgages and collateralized debt obligations.
Mayo said Merrill Lynch faces an equal amount of writedowns and that other write-downs could occur at Bear Stearns , Morgan Stanley , Bank of America and Wachovia .
Both analyst reports hammered financial stocks late in the week and kept the overall market from rallying despite a Fed rate cut and generally positive economic news.
Asset Sales Possible
Analysts said that with a $2.7 billion quarterly dividend to pay, equal to 54 cents per share, Citigroup might have to consider asset sales or limiting trading activity, reducing potential for profitability.
On Oct. 15, Chief Financial Officer Gary Crittenden said Citigroup hoped to return to targeted capital levels early next year. He said the bank would suspend stock buybacks, and use
stock to buy the remaining 32 percent of Japanese brokerage Nikko Cordial for $4.6 billion.
Not enough, Credit Suisse analyst Susan Roth Katzke wrote.
"Expect more aggressive balance sheet rationalization in the months to come," Katzke said Thursday, as she downgraded Citigroup to "neutral" from "outperform."
Not everyone thinks a dividend cut is needed. A cut would likely cause even deeper selling of Citigroup shares.
Banc of America Securities analyst John McDonald said cutting the dividend would be "extreme," and that Citigroup could probably get by with shrinking its balance sheet.
-- Wire services contributed to this report.