Citigroup's CEO Chuck Prince To Resign

This mornings weekend edition of the Wall Street Journal carries a lead story that Chuck Prince will resign his position as CEO of Citigroup at a meeting of the firm's board tomorrow.

Back in January of this year, I wrote two posts, here and here, contending that it was already time for Prince to leave Citigroup.

To be fair, it's unlikely that much of the recent financial damage Citi has sustained would have been much less if Prince had been fired nine months ago.

However, the real damage has been occurring, continually, for nearly four years under Prince. As the nearby Yahoo-sourced price chart for Citigroup and the S&P500 Index shows, the bank has treaded water since late 2003 under Prince's mismanagement.

Originally handling the regulatory mess that Sandy Weill left for him, Prince foundered as soon as that phase of Citi's troubles were behind him.

Don't you wonder why Citigroup's board allowed Chuck Prince to run the firm with such lackluster, market-underperforming results for so long? According to this piece on the Forbes website, Prince has been paid, through last year, just over $49MM as CEO. Just over $15MM per year of failure to best an index whose performance can be purchased through Vanguard for about .2 cents/dollar.

The Journal article alleges that Prince, who, like Merrill's Stan O'Neal, incomprehensibly worked sans contract, may leave Citi with as much as $31MM. How much of this amount was counted in the Forbes compensation is not clear to me, but I'm willing to bet that at least half of the amount reflects new payments upon his exit.

Citigroup's board, which is listed here, would seem to be ultimately culpable for allowing this long, slow slide into mediocrity of the country's largest commercial bank. Despite the Journal's reporting that either Bob Rubin or Dick Parsons might be considered to move from board member to interim chairman, it's hard for me to see how members of this already tainted group could be candidates to correct the situation.

And isn't it odd that, along with his longer term management failures, Prince allowed the seven SIVs which Citigroup operates, reputedly worth some $80B of purchased asset value, to be created? Of all the functional skills a CEO would need to understand whether, and how much, risk Citigroup ultimately has from these entities, a lawyer would seem most capable.

Didn't Prince understand that the SIVs were simply off-balance sheet tactics to imply that Citi stood behind the entities, while carefully avoiding explicitly leaving a paper trail as such?

Isn't this the type of regulatory corner-cutting Prince was supposed to have avoided? Didn't his board wonder, as these SIVs were created, precisely where the risk went? Especially Rubin, a onetime co-head of Goldman, Sachs, and Secretary of the US Treasury?

Call me a broken record, but as I opined regarding Merrill, here, I think Citigroup, too, should be dismantled upon Prince's departure. It's not as if a long string of stellar years of performance were briefly interrupted under Prince's tenure.

The truth is, ever since Sandy Weill fused his insurance-asset management conglomerate with Citicorp some years ago, the firm has had trouble consistently outperforming the market for its shareholders. The diversified financial giant has proven too unwieldy and complex for anyone to run profitably to shareholders' lasting benefit, as measured against the less risky step of simply buying the S&P500 Index.

Most of Citigroup's businesses don't really positively affect each other. Oversight obviously continues to be a problem, both regulatorily, and for risk management purposes.

With the board having collaborated with Prince in allowing these omissions to fester and grow for four more years, after Weill, I'd suggest that the biggest favor the Citi board can grant its shareholders is, at least, to break up the company into separate, manageable units, spun back as separate equities to current Citigroup owners. Perhaps, in a few cases, buyers can be found for the units. It's unlikely that the old commercial bank unit could merge with another bank. But various asset management, investment banking and other non-core commercial banking units could be sold or split off.

Look at it another way. The company has suffered under two successive CEOs, and the board that allowed the pain to continue. Should anyone connected so far with this travesty have a hand in improving it within the same framework, going forward?

I don't think so. That way probably lies more failure and loss for shareholders.