Reeling bank's leader resigns

The Baltimore Sun

Throughout a long, public career, Robert E. Rubin spanned the highest reaches of Wall Street and Washington, and succeeded wherever he went.

Now, he could be facing his most difficult challenge - helping to revive Citigroup Inc., the banking giant built by financier Sanford I. Weill that is in disarray, buffeted by steep losses tied to mortgage loans and management turmoil.

The troubles at Citigroup, "the House that Sandy Built," have become so deep that Charles O. Prince III resigned yesterday as chairman and chief executive. Rubin, who was recruited to the bank in 1999 as an adviser to Weill, was named chairman while the board begins a search for a chief executive.

Citigroup employs about 6,000 people in Maryland, and the headquarters for Citi- Financial, the company's consumer lending division, is in Baltimore.

At an emergency meeting yesterday, directors named Winfried F.W. Bischoff, the head of Citigroup Europe, as interim chief executive.

The extent of Citigroup's problems also became clearer. The bank said that it would take an additional $8 billion to $11 billion write-down, on top of the $5.9 billion taken in early October.

That Rubin was named chairman - not interim chairman - suggested a degree of urgency. To attract a strong candidate, turning over both titles is probably necessary. "He wants to find somebody as chairman and CEO so he can step down," said a person briefed on the situation.

In an interview yesterday, Rubin remained firm that the bank's international and internal growth strategy would not change. But while Bischoff, 66, who has been with Citigroup since it acquired Schroders, the British investment bank in 2000, acknowledged that he was a stabilizer, he left open the possibility of changes later.

"That may be for the future," he said. "That is for a new CEO for the future."

Citigroup's board also formed a four-member search committee, led by Richard D. Parson, to begin what it called an expeditious process to identify a permanent chief executive. Bischoff said he was not a candidate for the post.

At stake in the process is the future of Citigroup as a financial supermarket, the legacy of Weill's vision, and the reputation of Rubin as an executive with a Midas touch.

The company, which already was partially dismantled during Prince's tenure, may have to shrink further to a more manageable size under its new leadership, according to analysts and people briefed on the situation. The core of Citigroup's problems, critics say, is that under Weill, it tried to be too many things: a commercial bank, brokerage firm, investment bank, and an insurance company. The strategy was that the different businesses would make each other stronger by offering one-stop financial shopping to customers.

But its sprawling operations, extending to more than 100 countries, spread management thin and made it difficult to keep tabs on financial risks. Its technology systems have been underfunded for years. Its cowboy culture and internal politics have proved difficult to rein-in, analysts said, and its sheer size makes it difficult to move the profit needle.

The problems that the bank faces go far beyond a stock price that has fallen about 20 percent since Oct. 1, when the bank said that third-quarter earnings dropped 57 percent. There are risk management issues at its investment bank; souring mortgage and credit card loans in its consumer division; and across the company, bloated costs and a shortage of talented managers.

Citigroup turned to two of its elder statesman and surest hands yesterday to guide it through this turbulent period. Bischoff is both respected and trusted by Citigroup's senior managers. And Rubin, whose career includes a stint as co-chairman of Goldman Sachs and a celebrated run as Treasury secretary, has plenty of experience navigating crises.

Until yesterday, he had long resisted taking a more active role in Citigroup. "Initially, he said he would do it but he was hoping there would be a co-chairman. But he stepped up and did what was necessary," said a person briefed on the situation who was not authorized to speak publicly. "There wasn't anybody else."

While he has been paid over $150 million since coming to Citigroup in 1999, he has said from the beginning that he would have no interest in running the bank and has even had language written into his contract accordingly.

Rubin has turned down offers to run Citigroup before. What seems clear is that this time, the Citigroup board has made the case that becoming chairman is a public service obligation not a job promotion. And in the best tradition of the wise men that Rubin has long admired, he was not able to say no.

Citigroup's search committee will be looking at both internal and external candidates. But the need for its independent directors to hold an emergency session yesterday at the company's Park Avenue headquarters suggests that nobody is ready from its existing bench. Rubin said the search committee would be looking for someone "who can relate to the international dimension, deal with complicated issues, and relate to a lot of very strong and smart people." Citigroup's problems, however, are bigger than a single individual can handle - whether it is Prince, Rubin, or another leader.

Virtually all of its operations suffer from years of under-investment that will take years to make up. Its loan loss reserves have been depleted, raising questions about whether it may need to sell-off assets. And Prince's long-term growth strategy, approved by the board, has had more setbacks than successes.

Investors have already begun the calls for Citigroup's diversified banking model to be disbanded, although Rubin and Bischoff said yesterday that no changes were planned at the moment.

While Rubin is publicly behind the bank's current growth plan, he has often asked provocative questions in private.

At a glance

Citigroup's problems: Last month, the company reported a $5.9 billion write-down and a 6 percent drop in earnings compared with the third quarter of last year. Yesterday, it said it will take an additional $8 billion to $11 billion in write-downs. Citigroup's shares are down nearly 18 percent for the year.

Local footprint: The headquarters for CitiFinancial, the company's consumer lending division, is in Baltimore. Citigroup employs about 6,000 people in Maryland.

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