Washington: The world’s biggest bank Citigroup has named ex-US Treasury chief Robert Rubin as its new chairman. He replaces Charles Prince, who retired as the bank posted massive losses from the subprime mortgage crisis.
“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 as chief executive officer is to step down,” said Prince, who was also chairman, in a company statement.
The company meanwhile announced losses worth up to $11 billion — massively higher than the $2.2 billion it had reported for the third quarter in September.
“Citi estimates, at the present time, the reduction in revenues attributable to these (sub-prime related) declines ranges from approximately $8-11 billion,” it said in a separate statement.
This represents a decline of $5-7 billion in net income after tax, it said.
Big boss: File photo of Robert Rubin, who replaces Charles Prince as chairman of Citigroup
Rubin, the influential chairman of the company’s executive committee, was named the new overall chairman, while Sir Win Bischoff, chairman of Citi Europe, will become interim chief executive, the company said.
Named head of the Treasury in 1995, Rubin earned a strong record by helping weather the Mexican financial crisis in 1995 and the Asian crash of 1997.
Rubin, 69, was given credit for much of the United States’ economic success in the 1990s as economic adviser to then-president Bill Clinton and later Treasury chief.
Prince will continue to serve the company as an adviser while a permanent replacement is found.
“We have made strong progress in our strategy for building for the future, evidenced in the momentum we have achieved in most of our businesses,” he said in the Citigroup statement.
His departure came less than a week after that of Merrill Lynch chief Stanley O’Neal. Citigroup’s newly announced losses likely surpassed the eight billion-dollar damage posted in October by Merrill, due to the subprime crisis.
Like some of its rivals, Citigroup’s balance sheet has been hit by losses from its exposure to mortgage-backed securities, which have been ravaged by the housing downturn.
Citigroup had already revealed losses from bets it made on mortgage-backed securities and other loan instruments, as well as disclosing hefty pre-tax writedowns related to mergers and acquisitions lending agreements.
The banking giant’s stock closed down 2% at $37.73 Friday. Its shares have slumped a hefty 21% from $47.72 on 1 October prior to the release of its latest earnings. The price has fallen 32% this year.
The Wall Street Journal said the Security and Exchange Commission would launch a preliminary investigation into Citigroup’s accounting practices.
On finding a permanent replacement for Prince, Rubin said: “We intend to complete our search for a new CEO as expeditiously as possible, reviewing qualified CEO candidates from outside as well as within our organization.”
“In addition, a new unit, the sole focus of which will be on managing the assets related to sub-prime mortgage securities and their resultant exposures, has been established,” Rubin added, referring to the high-risk mortgages that are offered to home buyers with bad credit ratings.
“This unit will be separate from the other parts of our capital markets and banking business,” Rubin said.
“I intend to work closely with the Board, Win, and the operating and executive leadership to maintain the momentum of our business,” he added.
Rubin joined Citigroup in 1999 and came to be regarded as Prince’s closest adviser.
“We will continue to focus on taking the steps necessary to help our employees realize their full potential, serve our customers with distinction, and build superior value for all of our shareholders.”
Prince, according to The Wall Street Journal and The New York Times, leaves Citigroup with a substantial sum of between $31 million and $94 million.