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Posted: Sunday, 04 November 2007
7:07PM

Citigroup CEO Charles Prince
Resigns

NEW
YORK (AP)  -- Citigroup Inc. said
Sunday Chairman and Chief Executive Charles Prince,
beset by the company's billions of dollars in losses
from investing in bad debt, has retired and is being
replaced as chairman by former Treasury Secretary Robert
Rubin.

In an announcement following an emergency
meeting of Citi's board, the nation's largest banking
company 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.

Prince's
resignation, which was secured at an emergency meeting
of the Citi board Sunday, was expected after the
nation's largest banking company revealed it had to
write down billions of dollars in bad debt. He 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.

In a separate statement, Citi said it would
take an additional $8 billion to $11 billion in
writedowns. It has already said it was writing down $6.5
billion in assets.

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 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.

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.

It was not known whether Bischoff was in
the runningn 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 NYSE Euronext.

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.

© MMVII The Associated
Press. All Rights Reserved. This material may not be
published, broadcast, rewritten or redistributed. Audio
Content and Graphic Content © MMVII WCBS-AM 880.

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