Bring on the Trumbells

5 November 2007



Prince Abdicates CEO Job at Citi

The subprime mortgage mess has claimed another bigshot. Charles Prince, who just a month ago was telling Citigroup shareholders that better days were ahead, has resigned. It's never a good sign when the board of directors holds a week-end meeting. Sir Win Bischoff, chairman of Citi Europe and a member of the Citi management and operating committees, was appointed interim CEO and former US Treasury Secretary Robert E. Rubin is the new chairman.

Citi faces write offs of between $8 billion and $11 billion from losses in mortgage-backed assets. Mr. Prince tried to spin this as the end of the losses, but his credibility took a hit early last month when he completely missed the numbers for the third quarter results. A CEO shouldn't make that kind of mistake or he starts to look out of touch. He told analysts on a call recently, ““I think any fair-minded person would say that strategic plan is working.” It isn't.

Moreover, some of the analysts knew it. MSNBC reports, “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.” Mr. Prince will be taking $25 million with him.

That said, Mr. Prince did fall on his sword. “I am responsible for the conduct of our businesses. 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," he told Citi's employees in a memo.

Perhaps the wisest words came from 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. I wonder what it means for everyone else.” Indeed.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.


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