Citigroup may face $11 billion writeoff

By Jonathan Stempel and Dan Wilchins

NEW YORK (Reuters) - Charles Prince resigned on Sunday as chairman and chief executive of Citigroup Inc, as the bank said it may write off $11 billion of subprime mortgage losses, on top of a $6.5 billion write-down last quarter.

Robert Rubin, the former U.S. Treasury Secretary who had chaired Citigroup's executive committee, was named chairman, while Sir Win Bischoff, who runs Citigroup's European operations, was named acting chief executive.

Citigroup said it expects to write down $5 billion to $7 billion after taxes -- roughly three or four months of profit -- for its $55 billion of exposure to U.S. subprime mortgages.

The write-down equals $8 billion to $11 billion before taxes, and may rise if markets worsen, the largest U.S. bank said. Citigroup's previous $6.5 billion write-down related to subprime mortgages, loan losses and other debt.

"I am responsible for the conduct of our businesses," Prince said in a memo to employees. "The size of these charges makes stepping down the only honorable course for me to take as chief executive officer. This is what I advised the board."

Citigroup, whose capital levels have been called into question, expects by June 2008 to return to normal capital levels, after previously expecting an early 2008 return. It has no plans to cut its 54 cents per share quarterly dividend.

"It's shocking," said Ralph Cole, a portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon. "The size of the write-down is most surprising, and the quickness with which subprime is deteriorating. Who's to say it isn't the last write-off (in the financial industry). I wonder what it means for everyone else."

Prince's departure came after he told investors on October 15, four days after an investment banking management shake-up, that the board thought Citigroup had a "good, sustainable strategic plan," and that further management changes weren't needed.

His exit ends a tumultuous four-year tenure marked by heavy turnover among senior executives, questions over strategy, and the mounting loan and credit losses. Problems have also spurred calls for the bank, which has $2.35 trillion of assets, to be broken up because it is too unwieldy.

Prince stepped down five days after Merrill Lynch & Co ousted Chief Executive Stanley O'Neal following a $8.4 billion write-down that was more than 50 percent higher than the bank had forecast, in what was also a speedy exit.

Citigroup shares have fallen 32 percent this year, and 17 percent since Prince became chief executive in October 2003. The shares rose early Monday in their Tokyo market debut.

THE DANCING ENDS

In a joint interview, Rubin and Bischoff expressed support for Prince's overall strategy.

"The board is extremely supportive of Chuck's strategy," Rubin said. "This is absolutely the right track."

Rubin, 69, joined Citigroup in 1999 after more than four years as Treasury secretary, and chaired the bank's executive committee. He has long been a close adviser to Prince, focused on strategy rather than day-to-day operations.