Citi’s Prince under fire again

Calls for CEO’s resignation rise after US bank forecasts 60% drop in Q3 net

NEW YORK: Calls for Citigroup chief executive Chuck Prince’s resignation grew louder on Monday after the largest US bank warned that its third-quarter profit would slide 60%, the latest stumble in the 57-year-old lawyer’s rocky tenure.

Critics had argued for Prince’s dismissal in the past, but investors became less shrill after a solid second quarter and a widening subprime mortgage crisis that seemed to engulf every bank.

But Citi on Monday said its performance in the third quarter was weak even considering the weak markets. The bank forecast a 60% drop in third-quarter net income, further frustrating investors who have seen the stock decline 16% this year.

At least one major analyst, Deutsche Bank’s Mike Mayo, said Prince should go. “We’re calling for a change in CEO,” he said. “A $6 billion write-down is the tipping point of bad performance at the company by Chuck Prince.”

Citigroup declined to comment.

The latest turn of fortune for Prince comes as he marks his fourth full year in the role at the top of largest US bank by market capitalisation. Citi shares have edged up 1.9% since Prince took over as CEO from Sanford Weill, compared with a 20% gain in the Philadelphia KBW Bank Index over the same four-year period.

The last two years have been particularly troubled, as the New York-based bank’s largest individual shareholder, Saudi Prince Alwaleed bin Talal, demanded “draconian” steps to cut costs and Prince has faced calls from some investors to break up the bank.

The bank’s executive ranks have been in turmoil, as it earlier this year removed Sallie Krawcheck as chief financial officer, and wealth management chief Todd Thomson quit.

Prince responded to calls for his ouster with a plan to slash 17,000 jobs and cut $4.6 billion in annual costs, a bid to reverse a long-standing problem with costs outpacing revenues and operating income.

The perception that he was starting to make progress before investors’ wholesale retreat from risk this summer may help Prince survive his current problems.

Besides, his backers point out, the chief executive should hardly be blamed for a credit crunch that is taking a heavy toll on much of the industry.

“He’s still under pressure, but this (warning) has nothing to do with his job security,” said Bill Fitzpatrick, an analyst at Johnson Asset Management. “If you’re looking to throw him under the bus, this isn’t really something that comes into play.”

Prince also continues to enjoy the support of the bank’s largest individual shareholder, Prince Alwaleed. “I’m backing the management of Citi and Chuck Prince. They have my full support,” Alwaleed said on Monday.

“No financial institution is immune from the financial turmoil in global markets.”

Yet in some respects Prince looked to have been caught offguard by the latest credit crisis.

In August, for instance, he told the New York Times in an interview: “We see a lot of people on the Street who are scared. We are not scared. We are not panicked. We are not rattled. Our team has been through this before.”

And just weeks before that, he told the Financial Times that Citigroup was “still dancing” in the leveraged loan arena — comments that raised many eyebrows.

What might be most worrisome for Prince is the share price reaction to the warning, at least if William Smith, chief
executive of SAM Advisors LLC, which owns Citigroup shares,is right.

Citi shares were up  $1.37, or 2.9%, at $48.04 in afternoon trading. “The only reason the shares are up is people
are betting this guy is gone,”  said Smith, a long-time Smith critic.