Advisory firm urges shareholders vote "no" on Citigroup

The logo over a Citibank branch is pictured in Chicago March 10, 2009. U.S. stocks rose about 5 percent on Tuesday after Citigroup said it was profitable in the first two months of 2009 and a key lawmaker said he expects the restoration of a rule that makes it harder to bet that a share's price will fall.

NEW YORK (Reuters) - Shareholders advisory company RiskMetrics Group Inc RMG.N recommended Citigroup Inc (C.N) shareholders vote against electing some current and former leaders of the company's audit committee, citing poor risk oversight.

Siding with a portion of a shareholders "Vote No" campaign by the American Federation of State, County, and Municipal Employees (AFSCME), RiskMetrics said it recommends shareholders vote against audit committee members John Deutch and C. Michael Armstrong as well as former lead director Alain Belda.

"Given the depth of the company's problems, the board may require a fresh start to rebuild its credibility with shareholders," RiskMetrics said in a note.

The banking giant is one of the biggest recipients of a U.S. government bailout.

It also recommended shareholders vote against independent outsider Anne Mulcahy for sitting on more than three boards while serving as chief executive of Xerox Corp (XRX.N).

"The board and the audit committee have chronically failed to address the company's risk management and compliance issues," RiskMetrics said in a note following discussions it held with the company and the shareholders.

"This poor oversight in conjunction with the company's continued asset expansion on a capital cushion commensurate to that of its closest peers contributed to its current state, compelling the government to provide the company with four instances of extraordinary government assistance," RiskMetrics said.

AFSCME also is asking shareholders to vote against current committee members Andrew Liveris, and Judith Rodin, who were not in leadership roles.

The advisory group said that while Citigroup has taken steps to address the situation, those steps "were reactive steps taken at the behest of regulators and not shareholders."

Although responsibility for oversight lies with the whole board, a significant portion lies with the audit committee members and lead director at the time its problems began, RiskMetrics.

Representatives from Citigroup could not be reached for comment.

The U.S. government in February agreed to a bailout that could give it a 36 percent stake in the bank. The government is also sharing in losses on $300.8 billion of troubled Citigroup assets.

The company has nominated four new directors as part of a shake-up seen as increasing the banking and financial expertise on the company's board.

The nominees are Anthony Santomero, a former president of the Federal Reserve Bank of Philadelphia; former U.S. Bancorp (USB.N) CEO Jerry Grundhofer; former Bank of Hawaii Corp (BOH.N) CEO Michael O'Neill, and former Pacific Investment Management Co CEO William Thompson.

Shareholders must approve the nominations at the bank's April 21 annual meeting.

(Reporting by Ilaina Jonas; Editing by Steve Orlofsky)