Citi faces $11 billion write-down

By Elizabeth Strott

Chuck Prince is the latest chief executive to fall victim to the subprime-mortgage-market meltdown.

Prince resigned as chief executive officer at Citigroup (C, news, msgs) over the weekend. Citi Europe Chairman Win Bischoff was named interim chief executive. Former Treasury Secretary Robert Rubin was named chairman of the bank.

Prince left his post after the bank suffered declines in profit and huge write-downs from bad bets on subprime mortgages. The bank over the weekend issued a statement saying it expects to write down an additional $8 billion to $11 billion for its exposure to mortgage-related securities in the fourth quarter. Citigroup had announced $2.2 billion in write-downs for the third quarter in mid-October.

"It is my judgment that, given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take . . . is to step down," Prince said in a press release.

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"The Board and I have tremendous respect for Chuck's leadership and his accomplishments over the years in helping to develop the Company's culture and direction and honing its formidable competitive advantages," Rubin said in the press release.

Rubin is chairman of Citi's executive board and has been associated with the bank since 1999.

Prince's departure also comes less than a week after Stan O'Neal left his post as CEO of Merrill Lynch (MER, news, msgs). Merrill had reported $7.9 billion in write-downs for the third quarter, $3 billion more than the company had forecast.

Last week, Deutsche Bank analyst Mike Mayo had estimated that fourth-quarter write-downs would be pretty big. Mayo wrote in a note to clients Friday that there will be at least $10 billion in write-downs in the fourth quarter from the financial-services industry -- Citigroup's announcement today could cover that all by itself.

Shares of Citi closed down $1.83, or 4.8%, at $35.90 today.

Citi shareholder meets with Sandy Weill

Former CEO Sandy Weill met with the company's biggest shareholder, Saudi Arabian Prince Alwaleed bin Talal, last week to discuss Citigroup's situation. The Saudi prince had been backing Prince until late last week, according to CNBC, after Weill traveled to meet with bin Talal.

Bin Talal seems to be interested in having Weill come back to run the company right now, but Weill said he's there to help -- not to come back and run Citigroup, CNBC's Maria Bartiromo reported.

One analyst said it would be best if Weill didn't come back.

"They need new people. They need new thinking. They need to get rid of all the people of the Sandy Weill era," Punk Ziegel analyst Dick Bove said. "Sandy Weill did more harm to this company than anyone in . . . years. Neither Sandy Weill or Robert Rubin should be anywhere close to this company."

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Weill built Citigroup into a monster financial-services conglomerate by merging Citicorp with Travelers Group in 1998. Weill was chairman of the company from 1998 to 2006 and CEO until 2003.

Rumored replacements for Prince include John Thain, chief of NYSE Euronext (NYX, news, msgs) and Larry Fink, who runs Blackrock (BLK, news, msgs). Fink has also been offered the CEO post at Merrill, according to reports

Citi cuts just-reported profit

Citigroup also said today that it is reducing its third-quarter earnings by 3 cents to 44 cents per share because of the update on subprime-related losses.

Citi had reported earnings per share of 47 cents on Oct. 15.

Citigroup was also in the news last week, when CIBC World Markets analyst Meredith Whitney said Citigroup might have to cut its dividend or sell assets to boost capital. Shares of Citi slumped 7% on the comments.

Bove dismissed the CIBC downgrade, saying that "Citigroup's dividend is protected." Bove upgraded Citigroup to "market perform," based on the 6% dividend yield.

Shares of the stock have lost 29% since the beginning of the year.

On Friday, Standard & Poor's strategists Sam Stovall and Alec Young downgraded the entire financial-services sector to "underweight" from "marketweight," saying that "the sector's fundamental outlook is deteriorating."

Bove expects "major adjustments to be announced by the brokers between now and Dec. 15 when they report their Q4 earnings."