Citigroup chief is set to exit after losses

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Citigroup's embattled chairman and chief executive has told senior officials at the bank that he expected to leave after an emergency board meeting this weekend, a banking industry official with ties to Citigroup said last night.

Charles Prince III, 57, had indicated that he expected to leave during this board meeting, this person said. Directors are also expected to discuss the possibility of another large write-off.

"The entire organization is in uproar and people have been looking for leadership," said one Citigroup executive familiar with the situation. "The organization is waiting for something."

"At some point, the company is worse off or better off without the guy," this person said. "That collective point has come and passed."

People close to the board said that a search committee would be formed to find a successor.

Prince's departure would be a crushing blow to the legacy of Citigroup's founder and former chairman, Sanford Weill, and will lead to renewed calls to break up the company.

Not only was Prince Weill's hand-picked successor, he was his chief lawyer who helped engineer a series of big deals that transformed Citigroup into a sprawling banking giant.

Reports of Prince's plans to resign were first reported on The Wall Street Journal online.

Prince would become the second chief executive to lose his job in the wake of the subprime mortgage problems. Also this week, the chairman and chief executive of Merrill Lynch, E. Stanley O'Neal, was forced to retire after the brokerage firm reported an $8.4 billion write-down and a $2.3 billion loss. O'Neal also angered directors with an unauthorized merger approach to a rival bank, Wachovia.

Citigroup, the country's largest bank by market value, in early October reported a $5.9 billion write-down and a 6 percent drop in earnings from the period a year earlier. The earnings report and the size of the write-down renewed speculation that Prince would have trouble remaining atop the bank.

The problems compounded on Thursday, when Meredith Whitney, an analyst at CIBC World Markets, downgraded Citigroup stock and said that the bank would need to cut its dividend or sell assets to stave off what she said was a $30 billion capital shortfall. The report sent Citigroup's shares down $3.39; they fell an additional 78 cents Friday.

Shares are down almost 18 percent for the year, much of that decline coming in the last four weeks.

Since taking over in October 2003, Prince has touted an ambitious strategy that called for expansion overseas and internal growth. This spring, he announced a restructuring effort to rein-in its expenses, months after the bank's biggest shareholder, Saudi Prince Alaweed bin Talal declared "draconian measures" were necessary." But despite a few signs small signs progress earlier this year, investors grew frustrated with the results.

For Prince, his abrupt departure comes as a surprise. In recent weeks two board members, Robert Rubin and Richard Parsons, had said firmly that they expected Prince to stay on for the coming years.

"Chuck is doing a good job, and I think he has been working in an extraordinarily complex situation through difficult markets," Parsons said in an interview in early October. "Now is not the time to be saying, 'Do we change course, or do we change captain.'"

But, in the wake of the quick reaction by the Merrill Lynch board in forcing out O'Neal, the Citigroup board began to feel pressure to take its corrective action.

To a large extent, Prince was bowing to the inevitable. Despite having been the chosen successor to Weill, Prince's austere, lawyerly manner, albeit leavened with a sharp sense of humor, did not go over well as Citi continued to flounder.

He was particularly unpopular within the investment bank, despite having overseen it for a period of time.

Prince became even more unpopular after the bank's write-down forced him to oust Thomas Maheras, a popular fixed income executive. Despite having presided over a series of trading losses in the last four years, Maheras had retained deep loyalty.

By firing Maheras's top lieutenants and placing Vikram Pandit in charge of revitalizing the bank, Prince lost what support he might have had even though it was a move that many saw as necessary given Citigroup's losses.

That there may be more losses coming would certainly seem to have been the last straw for Prince. But what may well have been his undoing was a broad strategic uncertainty that was highlighted in the analyst report written by Whitney.

While Prince has emphasized a more intense focus on international expansion, Whitney's report highlighted the $26 billion in acquisitions he had made in recent years and how it had drawn down the firm's capital. With credit markets seizing up and loans souring, Citigroup's weak capital position has become an indictment of sorts of Prince's strategy.

In the end, Prince's legitimacy was always a result of his close ties to Weill. As his chief lawyer, Prince was by Weill's side from the early days in Baltimore in the mid-1980s. The two men and a circle of other associates of Weill started to build the conglomerate that is today's Citigroup by turning around an obscure financial company called Commercial Credit.

With his sharp elbows and his indefatigable work ethic, Prince became indispensable to Weill. When Prince first took over Citigroup in October 2003, his legal skill served him well in navigating the choppy regulatory matters of the time and he was able to cut deals with U.S. federal and state regulators.

But he ultimately failed in taking the many disparate parts that Weill bequeathed to him and turning it into an organic whole.

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