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Citigroup bank chief steps down World's biggest bank's boss quits
(about 6 hours later)
The chairman and chief executive of the Citigroup bank, Charles Prince, has resigned, the company has announced. Charles Prince, the chairman and chief executive of the world's biggest bank, Citigroup, has resigned.
He will be replaced as chairman by former US Treasury Secretary Robert Rubin, while Sir Win Bischoff will serve as interim CEO.He will be replaced as chairman by former US Treasury Secretary Robert Rubin, while Sir Win Bischoff will serve as interim CEO.
Investor calls for Mr Prince to go have increased since the bank reported a 57% drop in quarterly profits, after losses in the sub-prime mortgage market.Investor calls for Mr Prince to go have increased since the bank reported a 57% drop in quarterly profits, after losses in the sub-prime mortgage market.
He is the second head of a leading US bank to step down within a week.He is the second head of a leading US bank to step down within a week.
The head of Merrill Lynch, Stan O'Neill, resigned after reporting heavy losses.The head of Merrill Lynch, Stan O'Neill, resigned after reporting heavy losses.
Below expectations SUB-PRIME CRISIS EXPLAINED Special seires on why bad US home loans are affecting us allToday: Spread of sub-prime Friday: US economy stalls class="" href="/1/hi/business/7070935.stm">Two million set to lose homes class="" href="/1/hi/talking_point/7062653.stm">Readers' experiences After Mr Prince stepped down, Citigroup revealed that it was facing losses of between $8bn and $11bn in previously undisclosed losses due to a decrease in the value of its $55bn portfolio of sub-prime loans.
And it warned that there could be further losses to come in its trading positions in sub-prime mortgages if its hedging operations did not succeed.
'Structure is broken'
"Given the size of the recent losses in our mortgage- backed securities business, the only honourable course for me to take as chief executive officer is to step down," Mr Prince said on Sunday."Given the size of the recent losses in our mortgage- backed securities business, the only honourable course for me to take as chief executive officer is to step down," Mr Prince said on Sunday.
The board of Citigroup paid tribute to him, with Alain Belda saying: "We thank Chuck for his unwavering commitment to Citi, its employees and its shareholders." But some analysts say that the sub-prime losses were just the last straw.
The latest spate of poor earnings reports from US banks have prompted concerns that the worst of the credit crisis may be yet to come. "When you look at the trillions of dollars in assets that Citi has and you're talking about potential exposure of maybe $15bn: it's bad but it's not the end of the world," said Bill Smith from Smith Asset Management in New York.
SUB-PRIME CRISIS SERIES Special reports on why bad US home loans are affecting us all Monday: Cleveland blighted Friday: US economy stalls class="" href="/1/hi/talking_point/7062653.stm">Viewers hit by sub-prime crisis speak out class="" href="/1/hi/business/7070935.stm">Two million set to lose homes "The actual structure of Citigroup is broken - it's too big, it's too bloated and we think it should be broken up into three of four pieces," he added.
Speculation about the future of Citigroup has intensified since Friday, when the Wall Street Journal said the firm's board was set for an emergency meeting on Sunday. The board of Citigroup paid tribute to Mr Prince, with Alain Belda saying: "We thank Chuck for his unwavering commitment to Citi, its employees and its shareholders."
Shares ended the week 2% lower by close of trade in Friday in New York, at $37.73. Earnings revisions
In the three months to the end of September, net income dropped to $2.38bn from $5.51bn a year earlier. Mr Prince's resignation follows the sudden increase in the projected losses suffered by the group.
At the time of the results Mr Prince said: "A significant amount of our income decline was in our fixed-income business, where we have a long track record of strong earnings, and this quarter's performance was well below our expectations." Earlier, Citgroup had reported that net income (profits) dropped to $2.38bn from $5.51bn a year earlier, in the three months to the end of September.
On 1 October, the firm had projected a 60% drop in quarterly earnings.
"This was a disappointing quarter, even in the context of the dislocations in the sub-prime mortgage and credit markets," said Mr Prince.
On Monday morning, Citigroup shares rose 5.8% in value on their Japanese stock market debut, hours after Mr Prince's departure was confirmed.On Monday morning, Citigroup shares rose 5.8% in value on their Japanese stock market debut, hours after Mr Prince's departure was confirmed.
From a tentative starting price of 4,330 yen, based on Friday's New York close, they traded at 4,580 yen.From a tentative starting price of 4,330 yen, based on Friday's New York close, they traded at 4,580 yen.
Sub-prime woesSub-prime woes
Citigroup has been one of the most active participants in the sub-prime mortgage-backed securities market, buying billions of dollars worth of mortgages and then selling them on to international investors.Citigroup has been one of the most active participants in the sub-prime mortgage-backed securities market, buying billions of dollars worth of mortgages and then selling them on to international investors.
But since August the credit market for these types of securities has frozen up, leaving many big banks holding unsold morttgage securities whose value has taken a tumble. But since August the credit market for these types of securities has frozen up, leaving many big banks holding unsold mortgage securities whose value has taken a tumble.
The lack of a market has made it difficult for companies to evaluate the size of their potential losses.The lack of a market has made it difficult for companies to evaluate the size of their potential losses.
In its statement, Citi said that its securitized mortgage-backed debt obligations "are not subject to valuation based on observable market transactions."
Instead, it has had to estimate the fair value of those securities, based on assumptions about future house prices and cash flows from the underlying mortgages.
Overall, there are over $1 trillion worth of sub-prime mortgage-backed securities outstanding, and the Federal Reserve has estimated that the financial sector as a whole could lose at least $100bn.Overall, there are over $1 trillion worth of sub-prime mortgage-backed securities outstanding, and the Federal Reserve has estimated that the financial sector as a whole could lose at least $100bn.