Embattled Citigroup CEO Resigns

Citigroup Inc. says its chairman and chief executive, Charles Prince, beset by the company's billions of dollars in losses from investing in bad debt, has retired and is being replaced as chairman by former Treasury Secretary Robert Rubin.

In an announcement following an emergency Sunday board meeting, Citigroup also said Sir Win Bischoff, chairman of Citi Europe and a Member of the Citi management and operating committees, would serve as interim CEO. Rubin, a former co-chairman of Goldman, Sachs & Co., has served as the chair of Citi's executive committee.

CBS News correspondent Randall Pinkston reports the shakeup at Citigroup, the world's largest bank, follows the abrupt departure last Tuesday of former CEO Stan O'Neal from Merrill Lynch, the world's largest brokerage firm. While both firms lost billions, analysts insist the damage isn't fatal.

Analysts say a combination of bad loans, lower profits, and a declining stock price set the stage for Prince's exit.

Citigroup's profit plummeted 57 percent in the third quarter - a freefall triggered by a $6 billion loss in bad loans. Financial analysts drove down its stock value to $37 a share. That's a 7 percent loss in just one week . The stock is now 17 percent lower than when prince became chairman four years ago.

"It's not one thing that he did wrong. There were a number of things that went wrong during his tenure. He was not able to grow profits as fast as revenues," said Ganesh Rathman, an industry analyst. "Investors would expect the new CEO to come in, clean house, and actually inspire his troops, and instill some confidence with investors and Wall Street."

In a separate statement, Citi said it would take an additional $8 billion to $11 billion in writedowns. It has already said it was writing down $6.5 billion in assets.

Prince, 57, became chief executive of Citigroup in October 2003. Many shareholders criticized him openly for much of his tenure, as Citigroup's stock lagged its peers while Prince executed what was called an umbrella model of corporate organization, with several separate lines of business. Shares closed Friday at $37.73, about 20 percent below where they were when Prince became CEO.

Prince's position looked especially shaky after the company on Oct. 1 estimated that third-quarter profit would decline about 60 percent to some $2.2 billion after seeing nearly $6 billion in credit costs and write-downs of overly leveraged corporate debt and souring home mortgages. At that time, Prince said the bank's earnings would return to normal in the fourth quarter.

But when Citigroup released its third-quarter results two weeks later, the write-downs and credit costs exceeded $6 billion, and Chief Financial Officer Gary Crittenden indicated the outlook going forward wasn't as upbeat as Prince had predicted.

Citigroup wasn't alone in its third-quarter turmoil. When borrowers with poor credit stopped paying their mortgages, many banks not only had to take losses on those subprime mortgages, they also saw instruments in their portfolios backed by mortgages plummet in value.

But Citigroup's stumbles were particularly grievous, given the bank's size, history and CEO, who had been telling shareholders for years to give his strategy a chance. Even in October, Prince said in a call to analysts: "I think any fair-minded person would say that strategic plan is working."

The umbrella model that Sanford I. Weill created and Prince touted looked like a giant mess compared to its conglomerate counterpart JPMorgan Chase & Co. - now led by Weill's former protege, Jamie Dimon. JPMorgan's writedowns were smaller, and strength in asset management, security services, card services and commercial banking units made up for weakness in other areas. Having cut costs and built up cash reserves in previous quarters, the bank was better prepared for a tough lending climate.

Meanwhile, Citigroup's expenses outweighed revenues, it botched its fixed income trading operations, and its cash-to-debt ratio dipped.

The anger toward Prince was so intense that during a conference call last month, Deutsche Bank analyst Mike Mayo told Prince that investors wanted a significant change in management. His supporters, though, argue that he was dealt a tough hand when his predecessor Weill gave him the reins, and that matching the hefty profit gains Citigroup saw in the 1990s would be difficult for any CEO.

Weill was a fairly popular leader, building Citigroup through various mergers and acquisitions over the course of about 20 years into the huge conglomerate that it is today. When he stepped down as chairman in 2006 and handed the position to Prince, Weill - now a board member - got two standing ovations from shareholders and a big blue banner from employees that read, "Thank you, Sandy!"

Prince, whose compensation came to nearly $25 million last year, is leaving under a much darker cloud.

Citigroup, along with JPMorgan Chase & Co. and Bank of America Corp., is trying to create a fund to buy up distressed securities in the tight credit markets, a move some industry experts say smacks of desperation. Citigroup is the only major U.S. bank to manage "structured investment vehicles," or SIVs, and may end up having to take losses on them because demand for the assets that fund them has dropped.

It was not known whether Bischoff was in the runningn to replace Prince as CEO. Before Sunday's meeting, many ideas for Prince's replacement were floated by industry watchers; one name that has come up often is John Thain, who was once president of Goldman Sachs and is now CEO of NYSE Euronext.

But it may take more than a figurehead change to restore shareholders' confidence in Citigroup, considering how much bad debt it has on its hands and its hard-to-shed image of a rule-flouting old boys club.

In 2004, Citigroup had to close its Japan Private Bank amid allegations of improper activities. And in January, former head of global wealth management Todd Thomson resigned, reportedly having been forced out for extravagant spending and dealings with CNBC anchor Maria Bartiromo.

Citigroup did a minor reshuffing in early October, combining its investment banking and alternative investments businesses into one unit led by Vikram Pandit, who had led Citigroup's alternative investments unit. Tom Maheras, co-CEO of the investment banking unit, left.

At the time, Rubin and Saudi Arabian Prince Alwaleed bin Talal - Citigroup's biggest individual shareholder and once a critic of Prince - expressed their support for the bank's embattled CEO.