Citi Boss Charles Prince Deposed As Credit Crisis Deepens

CHARLES PRINCE, boss of the banking giant Citigroup, is expected to resign today, becoming the latest high-profile victim of the credit crunch rocking the world’s financial markets.

His departure threatens to trigger a fresh sell-off in shares in banks amid mounting evidence that the credit crunch is having a devastating impact on global markets.

Insiders say Citi, one of the world’s largest financial institutions with more than 300,000 staff worldwide, may tomorrow reveal further losses from sub-prime loans, and that the Securities and Exchange Commission may investigate whether it improperly juggled its books to hide the full extent of the problem.

Prince, 57, has been chief executive at Citi since 2003, when he took over from Wall Street legend Sandy Weill. It is not clear what pay-off he will receive – he has no contract of employment, and holds stock options worth about $90m.

Robert Rubin, the former US Treasury secretary who is the chairman of Citi’s executive committee, is seen as a possible interim replacement. Vikram Pandit, the former Morgan Stanley executive who has been at Citi for less than a year, is tipped by some bankers to take the top job.

Prince has been under pressure to quit for months, but calls for his resignation have mounted after the bank last month reported $6.5 billion (£3.1 billion) in write-downs and losses from credit markets. Since the announcement, Citi has lost more than a fifth of its market value.

The bank may attempt to rebuild its balance sheet by cutting dividend payments, but some analysts say a more radical strategy is required, with calls for a break-up of the organisation.

Evidence of the huge hits being suffered by American financial institutions have triggered fresh fears about the likely impact of the credit crunch on British banks.

Shares in Barclays lost 6% on Friday amid unsubstantiated reports that it had been forced to seek emergency funding from the Bank of England. And analysts at Goldman Sachs forecast that the investment-banking operation Barclays Capital is likely to see a 40% fall in second-half income.

Goldmans’ warning comes just weeks after Bob Diamond, the head of Barclays Capital, delivered a resolutely upbeat assessment of the division’s prospects.

Within the past few days, the European banks UBS, Credit Suisse and Deutsche Bank have all made multi-billion dollar provisions to cover losses stemming from the credit crunch.

Analysts believe Citi is set to announce further write-downs as the full extent of the damage caused by the collapse in the sub-prime and credit markets becomes clear.

Merrill Lynch chief executive Stan O’Neal was ousted last week after his firm reported $8.4 billion of write-downs. Deutsche Bank analysts predict Merrill may write off a further $10 billion of losses related to its portfolio of sub-prime debts.

In recent months, Citi directors, including Time Warner boss Dick Parsons, have publicly pledged their allegiance to Prince. In October, the Citi chief received a vote of confidence from Prince al-Waleed bin Talal, the bank’s biggest individual shareholder. However, the board’s sentiment may have shifted in the wake of Citi’s dire third-quarter earnings report.

Despite the renewed turbulence, analysts do not expect either the Bank of England or the European Central Bank to follow the Federal Reserve in cutting interest rates this week.

The “shadow” MPC, which meets under the auspices of the Institute of Economic Affairs, has been a good predictor of decisions by the actual MPC. Its members are unanimous this month that there should be no change in rates, voting 9-0 to keep Bank rate at 5.75%.

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