Citigroup Head to Step Down
LIANE HANSEN, host:
The subprime mortgage crisis is apparently about to envelop another victim. The chief executive of Citigroup plans to resign today according to the Wall Street Journal.
Citigroup is set to hold an emergency board meeting. That's when Charles Prince is expected step down. It won't come as a shock if Prince does resign. Citigroup suffered a $6.5 billion write-down in the third quarter and more losses are feared. Just this past Tuesday, Merrill Lynch ousted its chief executive, Stan O'Neal, for similar reasons.
NPR's Jim Zarroli has been covering the story in New York.
Jim, I think we have to ask the first question. How much responsibility does Charles Prince actually bear for Citigroup's poor third quarter performance?
JIM ZARROLI: The fact is that many big banks have suffered losses in the subprime crisis - Wachovia, Bank of America, Bear Stearns. They were all hit. So Charles Prince really shouldn't be singled out in that sense. On the other hand, Citigroup has a special set of problems that go beyond subprime. It's spent a lot of money on acquisitions over the years. And I think a lot of critics would say Prince hasn't addressed the problems adequately. And so the company has had more trouble surviving subprime than other companies might have.
HANSEN: What is Prince's legacy at Citigroup?
ZARROLI: Well, Prince came in when Citigroup was really struggling with the aftermath of some major ethics problems. So he sort of was involved in cleaning that up. A lot of people, however, were never really happy with his performance. The company was seen as too big. He tried to cut costs. It didn't go far enough. So when subprime losses happened, he didn't really have the political capital he needed to survive.
HANSEN: Could you just give us a bit of clip notes on what the subprime mortgage crisis is?
ZARROLI: In the tiniest of nutshells, you know, what happened is the mortgage business got very big, profitable, lot of new securities that made it easy to invest. As a result, a lot of mortgages got issued to people who couldn't afford them. There were foreclosures. There was this fear that investors would lose so much money that they wouldn't want to invest anymore and when that happens, you have a credit crunch, which is bad for the economy.
Now that hasn't happened basically because the Fed came and cut interest rates which makes money easier to get and sort of calms down the market. But whenever you have a Merrill Lynch or a Citigroup coming out and announcing big losses, it just scares everybody all over again.
HANSEN: And remind us why someone who doesn't have a subprime mortgage or an investment in mortgage-backed securities should care?
ZARROLI: At some point, the losses get big enough that the credit markets are affected and that does hurt the economy as a whole. And in fact, most economists would tell you that to some extent it already has.
HANSEN: NPR's Jim Zarroli in New York.
Jim, thanks very much.
ZARROLI: You're welcome.
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