Citigroup CEO Prince Falls to Subprime Debacle Charles Prince steps down as the head of Citigroup after some $8 billion in losses related to subprime loans. Prince had maintained that the bank didn't have serious exposure to subprime loans. Critics said Prince lacked the management skills to preside over a bank of 300,000 employees.
NPR logo

Citigroup CEO Prince Falls to Subprime Debacle

  • Download
  • <iframe src="https://www.npr.org/player/embed/15995002/15994604" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Citigroup CEO Prince Falls to Subprime Debacle

Citigroup CEO Prince Falls to Subprime Debacle

  • Download
  • <iframe src="https://www.npr.org/player/embed/15995002/15994604" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

RENEE MONTAGNE, host:

The subprime mortgage crisis has brought down another top Wall Street executive. Citigroup chairman and chief executive Charles Prince said he was stepping down yesterday after an emergency board meeting in New York. Citigroup has already named a replacement, former Treasury Secretary Robert Rubin. After that board meeting, Citigroup acknowledged that it suffered additional losses -losses of at least $8 billion.

NPR's Jim Zarroli reports.

JIM ZARROLI: After the meeting, Prince issued a statement saying that given the size of Citigroup's subprime losses, retiring was the only honorable thing to do. It was a humbling admission from a man who presided over the country's biggest bank. But Prince's five years as chief executive were never easy. He succeeded the powerful Sanford Weill, whose shoes were notoriously hard to fill, says NYU finance professor Roy Smith.

Professor ROY SMITH (Entrepreneurship and Finance, New York University): He came in at a time when, you know, a famous leader had been yanked away and there are a lot of problems in the past. All sorts of market disruptions occurred and, you know, he wasn't really a charismatic fellow who could rally the troops, necessarily.

ZARROLI: Critics said Prince lacked the management skills to preside over such a big and unwieldy bank which has 300,000 employees and operations in more than a hundred countries. But it was the subprime crisis that sealed his fate. Roy Smith says Citigroup took out big positions in risky securities.

Prof. SMITH: They've been very aggressive and they've been pushing profit growth very hard in a lot of areas, and that sort of means that you pile up risk that don't necessarily bother you unless all of a sudden the markets change and they do.

ZARROLI: But as recently as a few months ago, Prince was insisting that Citigroup's subprime exposure was not serious. Burke Ellie(ph) is a banking consultant.

Mr. BURKE ELLIE (Banking Consultant): One of the things that really shocked people this year is the appearance of him not being fully aware of the extent of which Citi was facing losses in and perspective losses in the various high-risk credit markets.

ZARROLI: In October, during a conference call with stock analysts, Prince had to acknowledge that Citigroup had suffered $6.5 billion in subprime losses. In a tense exchange, Deutsche Bank analyst Mike Mayo suggested that given the losses, maybe it was time for Prince to leave.

Mr. MIKE MAYO (Analyst, Deutsche Bank): Chuck said this was the year of no excuses. You, guys, say the results are disappointing, so what are the repercussions at the level of the office of the chairman.

ZARROLI: Prince replied that subprime losses aside, the company was doing pretty well.

Mr. CHARLES PRINCE (Former Chief Executive Officer, Citigroup): No one can be happy with the results in our fixed income business or with the results that relate to that. But I think if you are able to look at the other parts of our business, if you look at the strategic plan that we're executing on, I think any fair-minded person would say that strategic plan is working.

ZARROLI: But many investors worry that the losses were even bigger than they appeared and yesterday, those fears were born out. Citigroup said it had an additional $8 to $10 billion in pre-tax losses.

Burke Ellie says there are other worries, too. The company has made frequent use of specialized investment vehicles or SIVs that transfer risky investments off a company's books.

Mr. ELLIE: Citi seems to have a much greater exposure to the SIVs than other banking companies have, so I think that that has been a part of the concern.

ZARROLI: Prince's departure comes a week after another high-profile Wall Street firing, that of Merrill Lynch CEO Stan O'Neal. Like Prince, O'Neal, at first, underestimated the size of his company's subprime losses and that cost both men credibility with investors.

For Citigroup's new leaders, the first task they confront will be sorting through these losses and reassuring investors that no more bad news is coming.

Jim Zarroli, NPR News, New York.

Copyright © 2007 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.