What is Chuck Prince Doing? I Never Know What He's Doing...

Sorry, a little Wedding Crashers reference. But truly, what IS he doing? He is running a $240 billion (market cap) global financial colossus, and he is treating his organization chart as if it's his own personal plaything. When I eyed tonight's Wall Street Journal story I was simply awe-struck.

The personnel moves were announced as part of a new corporate structure in which Citigroup will merge its investment-banking operations and its alternative-investments businesses. The combined unit will be run by Vikram Pandit, a former Morgan Stanley executive who joined Citigroup earlier this year when the bank bought his Old Lane hedge fund. Initially viewed as a potential successor to Mr. Prince, Mr. Pandit will now rise another step up Citigroup's hierarchy just months after joining the bank.

Vik to run both alternative investments and banking? How does that go together?

Meanwhile, Thomas Maheras, who has been co-head of investment banking with responsibility for capital markets and trading, is leaving the company. Mr. Maheras also had been considered a potential successor to Mr. Prince and is highly regarded with the ranks of the bank.

The well-regarded Tom Maheras and Randy Barker (mentioned later in the article) shunted to the side? It was not that long ago that Tom was the "golden boy" - how do you go from that to dog-crap in such a short span of time? This just isn't natural.

Under the new structure, Mr. Pandit is rising above veteran banker Michael Klein and James Forese, who will jointly run the investment-banking business, and John Havens, who will run the alternative-investments business.

And what about Michael Klein and Jim Forese? Are they just going to say "Hey, Vik, great to have you as my new boss!" This is Wall Street, Chuck. People have egos, believe it or not. These are top guys, real deal guys, and you've treated them like - well, if I'm them I'm not sticking around too long. Don't get me wrong - I'm not against bruising egos here and there for the greater good, but is this really the greater good? It seems as if maybe, must maybe, you are trying to accomplish a few things in one fell swoop:

• Scapegoat a few guys for having their privates in a vise due to aggressive P&L targets, taking on too much risk and losing some money when everybody on the Street did, guys who have been making the firm lots of money and building businesses for a long, long time;

• Assert your leadership via the old Al Haig routine - "I am in charge." Yeah, I know. So was the captain of the Titanic; and

• Set up Vik for the inevitable CEO succession which was telegraphed when you paid the largest executive search fee in history, around $800 million, to buy Old Lane essentially for Vik, John and an ok, mid-sized hedge fund.

This whole move makes me think of George Steinbrenner's recent ultimatum to Joe Torre delivered via the press: "(You're) the highest paid manager in the game; if (you) don't win this series then maybe (you) shouldn't be working here." Ugh. I understand that the other Prince (the Saudi Prince) was supportive of Chuck's move; maybe he is looking for something, anything, to propel Citi's share price higher. But as an outsider who used to be an insider, this does not look good.

Comments

[Craiger]

Mr. Prince should be looking for work outside of Citibank. The real issue is that the board led by Mr. Rubin is please to accept their perks and just keep on trucking. Hey when its not your own money in play who cares. I wish several board members go as well to break up this Citibank Club.

Thanks Craiger

[mxt52]

Citigroup, JPMorgan, BofA. So far the score is 2:1 against conglomerates.

I wish somebody would put a side-by-side comparison of financial results for these three.

[mxt52]

I agree with the author and with charup's comment. As yet another former Citi employee (aren't there too many of us "former" employees these days?) I am painfully aware of backwardness of Citi technology (suffize to say, former Salomon, Smith Barney, and Citibank systems are still not integrated), and of dissaray that was brought on Citi's Investment Bank even before the latest moves.

Chuck's move has all components of a recipe for disaster - removing well regarded veterans, installing an outsider, installing an equity guy to manage Fixed Income business... This is compounded with a cost-cutting strain that falls on the back office and product control and numerous reorgs that already have been taking place in Fixed Income over the last year.

This move buys CEO another year, while Vikram installs his own people to run investment bank. It is difficult to say what it will look like at the end, and it is difficult to say whether Pundit, as a potential successor to Prince, has an appetite to run a diversified conglomerate. The breakup is still inevitable, it just has been postponed.

[charup]

Up until 2006 I worked in Citi's Fixed Income division. The losses in Fixed Income are due to a combination of factors, not just bad trades - e.g. a bureaucracy that makes the old Soviet system look enlightened, a multitude of front-end trading & booking systems, technology stuck in the dark ages as a result of years of under investment, a lack lustre back office and myopic management. Getting rid of the heads of trading may solve some problems, but the other issues still remain, for which Prince and his princelings (e.g. Druskin) need to take responsibility. Citi needs to be broken up and Prince shown the door.

[BeenThere]

I was around Sandy and Chuckie back before Citibank. The original team was pretty talented, (Dimon, Fishman) but they all left. The joke back then was that all Prince was in charge of was Sandy's "Surprise" Birthday party. There's only one person to blame for Prince, and it's obviously Weill.

[Kelley McCabe]

Why does article after article persist in saying Citigroup is taking a 60% hit on year-over-year 3rd quarter earnings? Here is the latest from Forbes in its "Banks And U.S. Treasury Discuss $100 Billion Support Fund" article on 10/13:
"(Citicorp) has warned shareholders that third-quarter profits would fall 60% thanks to $5.9 billion in charges and losses from the late-summer market rout and which has led to a shake-up at the bank's top management."

I don't understand. Third quarter 2006 profits were $5.5B. The original Citicorp announcement itemized $3.3B in write-downs - which equals 60% of $5.5B. Most articles added something like what the Associated Press wrote in its October 1st article entitled "Citigroup Sees 3Q Earns Down 60%":
"In addition, global consumer credit costs rose $2.6 billion in the third-quarter from the same period a year ago. About 75 percent of that increase is from boosting money set aside to cover loans that default, also known as loan-loss reserves."

What am I missing?? Is Citigroup taking a $3.3B hit or a $5.9B hit? If it’s $5.9B, why do so many articles talk about a $3.3B loss and a separate $2.6B loss. Is one loss a better loss than another? Does the press think we can’t add $3.3B and $2.6B? If the write-down totals $5.9B, then why isn't anyone saying Citi's 3rd quarter earnings are down 107%?

Just so you don't think I ran across a single journalist who couldn't calculate the percentage decrease associated with a $5.9B loss over a $5.5B gain, here it is again, on October 1st, from a Reuters article called "Citigroup Says Quarter Profit to Plunge":
"Citigroup Inc (NYSE:C - News), the largest U.S. bank by market value, said on Monday its quarterly earnings will drop 60 percent on $5.9 billion in losses and write-downs from subprime and leveraged loan woes, fixed income trading, as well as weakness in its consumer business."

I've seen this 60% quote in multiple other places, but I think I've made my point.

Here is something else I don't understand, but I sure would appreciate hearing from someone who does. In an Associated Press article regarding yesterday's downgrade of Citigroup:
"Ahead of the Bell: Citigroup"
"One of the most widely tracked analysts on Wall Street (Mike Mayo of Deutsche Bank) downgraded Citigroup Inc. to "Sell" on Friday, saying organizational changes are not enough to hold management accountable... He (Mayo) downgraded Citigroup's stock to "Sell" from "Buy," and cut his price target to $44 from $60."

A downgrade from "Buy" to "Sell" is a double downgrade - it skips right over "Market Perform". The market merely yawned at this news and, while Citi's stock was down $0.47 yesterday, the price was up over a dollar in after-hours trading...

I’ve rarely seen an analyst make such a drastic about-face in his/her recommendation and I'm not sure I've ever seen a more than 25% cut in a stock's target price (although it's probably happened). I don't think even Enron's targeted price was cut by a Wall St. analyst by more than 25% before it went down the toilet. Which reminds me... didn't Citi have a hand in the Enron debacle, too? Why is the market so eager to believe Chuck Prince “return to normalcy” claims? Chuck Prince was a very senior executive (and for those of you who don't know – Chuck is a lawyer by training) when Citigroup hid Enron’s improper accounting in 1999 allowing Enron to keep $125M in debt off its books. Although I’m sure Mr. Prince had no accountability for that transaction, either…

I feel like I’m watching a new, and unimproved, version of “The Emperor’s New Clothes”. This one is entitled “The Prince’s New Clothes”. Chuck, I’ll be the first one to say it: You’re not looking so good…

[Jason]

As a former Citi employee as well, I can attest to the "you're only as good as your last trade" mentality running through the organization.

To be fair to Chuck Prince though, he does have a succession plan in place. He plans to have no successors.

Sandy Weill and John Reed were also notorious for not tolerating uppity second in commands. For some reason or the other, Chuck is just seems to be messing everything up.

[Dmitry]

I worked for CAI (Citigroup Alternative Investments) up to November 2006, which gives me interesting insight into this mess. The problem as I observed at Citi is the fact there is no support in the bad times; as soon as something goes wrong instead of banding together people pull up their sails and head into another direction. This lack of commitment is manifested in 3 different changes of leadership and CAI in a 1 year span and a constant reshuffling of the top executives at Citi. Doing things right takes time and patience, obviously Chuck Prince is short of both.

[Yaser Anwar]

I don't know what the hell Chuck Prince is thinking, or what he's on. Whatever it is, seems to be quite powerful! It's as if Vikram has cast a spell on him (relax, just a joke).

I'm really looking forward to what Vikram and his Old "might-turn-out-to-be-in-vain" Lane buddies have in store for Citi. Promotion after promotion. I think they should retire once the bonus season is done, as they have surely made a "bundle" on behalf of Citi shareholders.

Dear Mr. Lampert, are you going to do something? Robert Rubin, the ex-CEO extraordinaire of GS, what about you?

Talk about killing morale Chuck Prince style.