Citi CEO Prince faces mounting shareholder unrest

By Dan Wilchins

NEW YORK (Reuters) - Investors intensified calls for Citigroup Inc (C.N) to oust Chief Executive Charles Prince on Thursday after an analyst's report pointed out the bank's weak capital position and shares dropped over 6 percent.

Meredith Whitney, analyst at CIBC, said in a research report late Wednesday that Citi could need to raise over $30 billion through moves such as asset sales or a dividend cut.

Citigroup's shares fell as low as $38.13 on Thursday after the report, to their lowest level in more than four years. They recovered a bit to trade late in the session at $38.71, down $2.65 or 6.4 percent. The cost of protecting Citi's debt against default jumped.

Citi's shares have fallen 30 percent this year, erasing more than $80 billion of market capitalization.

"I've been in Prince's corner for some time now, but even I'm ready for a change," said Lee Norton, an analyst covering financials at JS Asset Management, which owns Citi shares.

Citi's shares could rise 10 percent immediately if Prince stepped down, said Marshall Front, chairman of Front Barnett Associates, which owns 25 million Citi shares.

"It would relieve a psychological cloud that's been hanging over the stock for months," Front said. Front said he is not personally calling for Prince's ouster but added that he is likely in the minority in that regard.

Citigroup spokesman Mike Hanretta declined to comment.

Citigroup posted a 57 percent third-quarter earnings decline last month after recording $6.5 billion of pretax losses and write-downs.

The quarter followed solid first and second quarters, but investor patience has worn thin with Prince after years of underperformance compared with peers.

Since Prince took the reins at Citi in October 2003, Citi shares have fallen 15.4 percent, while the banking sector as measured by the Philadelphia KBW Bank index .BKX has risen nearly 13 percent.

Prince, a lawyer by training, is widely seen as having cleaned up compliance problems that cropped up during the tenure of former Citi Chief Executive Sanford "Sandy" Weill.

The Federal Reserve in 2006 lifted strictures against Citi making big acquisitions, that were put in place 2005 when the Fed raised questions about the bank's internal controls.

But investors are questioning Prince's ability to turn a sprawling empire into an efficient engine for profits after its failure to consistently boost revenue faster than expenses.

"Chuck Prince was the right guy for the job when Sandy left, but we're just not seeing improving results now. The drumbeat for Prince to leave is growing louder," said Anton Schutz, president of Mendon Capital in Rochester, New York, which owns Citi shares.