NEW YORK (Reuters) - Citigroup Inc Chief Executive Charles Prince plans to resign this weekend, the Wall Street Journal said, as the widening subprime mortgage crisis deals a final blow to a reign long under attack.
The largest U.S. bank by assets plans to hold an emergency board meeting on Sunday, at which Prince will step down, the newspaper said on Friday, citing people familiar with the situation.
Citigroup spokesman Michael Hanretta declined to comment. Prince did not immediately return a call to his office.
Speculation that Prince would soon leave the bank had swirled for weeks after a $6.5 billion third-quarter write-down fed fears of more losses to come, dragging Citigroup’s shares to a 4-1/2-year low.
Directors at Sunday’s meeting are also expected to discuss the possibility of another large write-down, The New York Times said. A search committee would be formed to find a successor to Prince, the newspaper said, citing people close to the board.
“Prince had told investors this would be the year of no excuses. It unfolded into a year of lots of excuses,” said Thomas Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, which invests more than $3 billion and owns Citigroup shares.
Citigroup stock is down 32 percent this year, and fell 78 cents to $37.73 in Friday trading. They rose to $39.01 after-hours as reports of impending Prince’s exit surfaced. The cost of protecting the company’s debt against default has shot up to levels that imply the bank’s credit ratings should be cut.
Prince’s departure would be the second of a top Wall Street executive in less than a week. On Tuesday, Merrill Lynch & Co ousted Chief Executive Stan O’Neal after an $8.4 billion write-down.
A lawyer by training, Prince is widely credited with having addressed Citigroup’s many legal and regulatory problems after he replaced Sanford “Sandy” Weill in October 2003.
But he has struggled to consistently boost revenue faster than costs, raising worries about whether Citigroup has sufficient capital to grow and boost profitability.
It was not immediately clear who might replace Prince. Analysts have said the bank has few, if any, candidates ready to step in now, following a series of high-level management departures under Prince.
Robert Rubin, the former Goldman Sachs & Co chief and U.S. Treasury Secretary who chairs Citigroup’s executive committee, was being floated as an interim replacement, but is reluctant to take over, the Journal said.
“He may not want the job, but if you are a Citigroup stockholder, you would wish he would take over,” said James Armstrong, president at Henry H. Armstrong Associates, which does not own the bank’s shares.
Other possibilities have included John Thain, another former Goldman executive who now runs NYSE Euronext.
Prince does not have an employment contract. It was not immediately clear how much money he would depart with. He has close to 744,000 restricted shares worth about $28 million, and owns more than $60 million of Citigroup stock directly, according to filings with the U.S. Securities and Exchange Commission. O’Neal’s exit package was about $161.5 million.
Prince has tried to bolster Citigroup’s bench by buying a hedge fund run by Vikram Pandit, a former Morgan Stanley head of institutional securities, and by hiring American Express Co Chief Financial Officer Gary Crittenden.
In the latest of a series of management shake-ups, Pandit was promoted last month to run the investment bank and alternative investments, as trading chief Thomas Maheras left.
Citigroup said on October 15 that third-quarter profit slid 57 percent as losses mounted in areas including subprime mortgages and corporate loans to junk-rated companies.
Those results included $6.5 billion of losses and write-downs in subprime mortgage bonds and other assets. This, combined with some $25 billion of acquisitions over the last year, left Citigroup’s capital below its internal targets.
Many investors are bracing for more write-downs as credit markets show few signs of improving after a turbulent summer.
Of particular concern are Citigroup-sponsored funds known as “structured investment vehicles.” If those funds are unable to finance themselves, the bank may feel pressured to bail them out.
Banks are trying to put together a backup fund to bail out SIVs and share the risk among multiple financial institutions, but progress has been slow.
The SEC is now reviewing how Citigroup accounted for $80 billion of assets in SIVs, the Wall Street Journal said.
“We’re confident that our accounting for SIVs is proper, and in full accordance with all applicable rules and regulations,” Citigroup spokeswoman Christina Pretto said.
A new chief executive may want to write down assets that have even the slightest whiff of trouble, said a portfolio manager who asked not to be named.
Citigroup may also be broken up. Prince has resisted this, but many portfolio managers believe Citigroup is unwieldy. The bank operates in more than 100 countries, and has some 300,000 full-time employees.
“It has too many moving parts,” Armstrong said.
CIBC World Markets analyst Meredith Whitney on Thursday said Citi may need to raise more capital through measures, including dividend cuts and asset sales.
Russo concluded: “It has been a long and tiring time for Citigroup stock investors.”