Citi CEO under fire again after warning

NEW YORK (Reuters) - Calls for Citigroup (C.N) Chief Executive Chuck Prince's resignation grew louder on Monday after the largest U.S. bank warned its third-quarter profit would slide 60 percent, the latest stumble in the 57-year-old lawyer's rocky tenure.

Critics had argued for Prince's dismissal in the past, but investors became less shrill after a solid second quarter and a widening subprime mortgage crisis that seemed to engulf every bank.

But Citi on Monday said its performance in the third quarter was weak even considering the weak markets. The bank forecast a 60 percent drop in third-quarter net income, further frustrating investors who have seen the stock decline 16 percent this year.

At least one major analyst, Deutsche Bank's Mike Mayo, said Prince should go. "We're calling for a change in CEO," he told Reuters. "A $6 billion write-down is the tipping point of bad performance at the company by Chuck Prince."

Citigroup declined to comment.

The latest turn of fortune for Prince comes as he marks his fourth full year in the role at the top of largest U.S. bank by market capitalization -- a period that has included a fair share of ups and downs.

Citi shares have edged up 1.9 percent since Prince took over as CEO from Wall Street legend Sanford "Sandy" Weill, compared with a 20 percent gain in the Philadelphia KBW Bank Index .BKX over the same four-year period.

The last two years have been particularly troubled, as the New York-based bank's largest individual shareholder, Saudi Prince Alwaleed bin Talal, demanded "draconian" steps to cut costs and Prince has faced calls from some investors to break up the bank.

A HEAVY TOLL

The bank's executive ranks have been in turmoil, as it earlier this year removed Sallie Krawcheck as chief financial officer, and wealth management chief Todd Thomson quit amid a flurry of media reports about his friendship with CNBC television anchor Maria Bartiromo.

Prince responded to calls for his ouster with a plan to slash 17,000 jobs and cut $4.6 billion in annual costs, a bid to reverse a longstanding problem with costs outpacing revenues and operating income.

As recently as early this summer, Prince looked like he had put the worst behind him. The share price still lagged its peers, but the bank put up strong second-quarter earnings and looked to be succeeding in cutting costs and boosting overseas revenue.

The perception that he was starting to make progress before investors' wholesale retreat from risk this summer may help Prince survive his current problems.

Besides, his backers point out, the chief executive should hardly be blamed for a credit crunch that is taking a heavy toll on much of the industry.

"He's still under pressure, but this (warning) has nothing to do with his job security," said Bill Fitzpatrick, an analyst at Johnson Asset Management. "If you're looking to throw him under the bus, this isn't really something that comes into play."

Yet in some respects Prince looked to have been caught offguard by the credit crisis. That more than anything else fueled questions on Monday about his future.

'STILL DANCING'?

In August, for instance, he told the New York Times in an interview: "We see a lot of people on the Street who are scared. We are not scared. We are not panicked. We are not rattled. Our team has been through this before."

He added, "I think our performance is going to last much longer than the market turbulence does."

And just weeks before that interview, he told the Financial Times that Citigroup was "still dancing" in the leveraged loan arena -- comments that raised many eyebrows.

What might be most worrisome for Prince is the share price reaction to the warning, at least if Chief Executive William Smith, chief executive of SAM Advisors LLC, which owns Citigroup shares, is right. Citi shares were up $1.37, or 2.9 percent, at $48.04 in afternoon trading.

"The only reason the shares are up is people are betting this guy is gone," said Smith, a long-time Smith critic. "You are not going to get rewarded for $6 billion in charge-offs. It's huge. Once again it is textbook Chuck Prince. One step forward, two steps back and then this guy thinks he's untouchable. This is it."

(Additional reporting by Christian Plumb, Mark McSherry and Jonathan Keehner, editing by Brian Moss)