New Citi leader will inherit sprawling mess

By Tim McLaughlin

NEW YORK (Reuters) - Citigroup's (C.N: Quote, Profile, Research, Stock Buzz) next leader will inherit a balance sheet battered by exposure to subprime assets, a work force bracing for major job cuts and a consumer lending business that could be slugged by a U.S. economic slowdown.

What's more, it could take Citigroup (C.N: Quote, Profile, Research, Stock Buzz) nearly three years to recoup losses on any further substantial write-downs of its collateralized debt obligations, according to analysts at CreditSights Inc., an independent fixed-income research firm. CDOs are debt structures backed by assets such as risky subprime mortgages.

Citigroup's board meets this week and a new CEO for the largest U.S. bank by assets could be announced. Frontrunners include Citi executive Vikram Pandit, who oversees trading, investment banking and alternative investing, and former Citigroup President Robert Willumstad.

Citigroup has been without a permanent leader since November 4, when chairman and CEO Chuck Prince was ousted. That same day, Citigroup said the value of $55 billion in U.S. subprime-related exposure had seen significant declines since the end of September.

Analysts say Citigroup's balance sheet problems could spark a major asset sale at the bank. CreditSights takes that thinking a step further, speculating that smaller rival JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) could buy Citigroup and boost earnings substantially by cutting operating expenses.

"The prospect of having to stomach Draconian marks against outsized CDO and SIV exposure could put Citi in a precarious position in terms of capital levels," CreditSights said.

As a result, Citigroup could have to consider a dividend cut, a major asset sale or even a takeover by a stronger bank, CreditSights said.

JPMorgan is seen as potential acquirer because its management team, led by CEO Jamie Dimon, has worked at Citi. Dimon also is seen as someone who could combine the two banks for big cost savings, CreditSights said.