Citigroup names Stuckey subprime portfolio chief
NEW YORK (Reuters) - Citigroup Inc (C.N) on Tuesday named Richard Stuckey, who helped stabilize the Long-Term Capital Management LP hedge fund, to fix its troubled subprime mortgage portfolio, which is expected to record a fourth-quarter loss for the largest U.S. bank.
Stuckey will run the Sub-Prime Portfolio Group, which the bank formed after saying on Sunday it would write down $8 billion to $11 billion in subprime losses. Chief Executive Charles Prince also resigned on Sunday.
Citigroup has $55 billion in subprime exposure, including $43 billion of "super-senior" collateralized debt obligations (CDOs) for which there are no buyers. These securities were once thought safe despite being linked to lower-quality mortgages.
The bank said its projected write-down might reduce net income by $5 billion to $7 billion, equal to three or four months of profit. It said the write-down might grow larger if market conditions worsen.
Stuckey, 51, is a managing director and head of finance in Citigroup's fixed-income, currencies and commodities unit. He will be assisted by Mark Tsesarsky, 45, head of special situations securitization in fixed income.
"(Stuckey) has an uphill battle," said Timothy Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
"There is nothing he can do about the real estate market, and as home prices decline it will create more defaults and a lack of investor interest in buying mortgage securities," Ghriskey said. "Unlike Long-Term Capital, which stabilized quickly, this project will require an extended recovery."
CreditSights Inc, an independent fixed-income research firm, said Citigroup's write-down might approach $14 billion.
Citigroup shares closed down 82 cents, or 2.3 percent, at $35.08 on the New York Stock Exchange. The 24-stock Philadelphia KBW Bank Index .BKX, which includes Citigroup, rose 2 percent. Citigroup shares are down 37 percent this year, while the KBW index is off 17 percent.
Merrill Lynch & Co Inc MER.N last month took an $8.4 billion write-down largely caused by mortgage exposures. That prompted the October 30 ouster of its chief executive, Stanley O'Neal.
NO OBSERVABLE TRADES
Stuckey was part of a group that 14 financial companies established to unwind Long-Term Capital, which was established in 1998 and suffered billions of dollars in losses after borrowing heavily to make investments that went bad.
Regulators at the time feared the collapse would cause upheaval in global financial markets.
"We will review our credit businesses to better align them with the future opportunity," according to a Citigroup memo announcing the appointments. A spokeswoman confirmed its contents.
Gary Crittenden, Citigroup's chief financial officer, told investors during a Monday conference call there were "no observable trades" in the $43 billion subprime portfolio.
"A year from now, two years from now, three years from now, the real question is going to be how much cash do we receive from these securities?" he said. "We may liquidate some of these if market prices come back. We just simply don't know."
Ghriskey of Solaris said Stuckey "needs to restore confidence in mortgage-backed securities broadly, so that there is liquidity and trading. Citigroup has a diverse array of business lines, but this will create long-term uncertainty for one part."
With Prince's departure, Robert Rubin, a former U.S. Treasury Secretary who led the bank's executive committee, was named chairman. Sir Win Bischoff, who led the bank's European business, was named acting chief executive.
(Additional reporting by Justin Grant in New York and Daisy Ku in London)
