Citigroup CEO resigns; interim named
Updated: 2007-11-05 09:41
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 is working."
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 climate.
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.
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