Citi cuts 3rd-qtr profit, shrs fall as CEO quits

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NEW YORK, Nov 5 (Reuters) Citigroup Inc reduced its third-quarter earnings a day after embattled Chairman and Chief Executive Charles ''Chuck'' Prince quit, as the U.S. bank's losses on subprime mortgages and other risky securities climbed.

The latest bad news sent Citigroup shares down 3 percent to .58 in pre-market trade.

Citi on Monday said it reduced its earnings to 44 cents a share from the 47 cents reported on Oct. 15. The New York commercial and investment banking giant said the reduction reflects the lower value of billion in collateralized debt obligations (CDOs).

Citigroup, which announced Prince's resignation on Sunday, had said it may write off billion of subprime mortgage losses, on top of a .5 billion write-down already reported last month.

Citi Chief Financial Officer Gary Crittenden said a conference call that the collateralized debt obligations that the bank owns are still generating cash flow as expected, even if their value has declined, and so selling the securities now does not make sense.

Following Prince's resignation, Robert Rubin, a former Goldman Sachs partner and U.S. Treasury secretary who chaired Citigroup's executive committee, was named chairman. Sir Win Bischoff, who runs Citi's European operations, was named acting chief executive.

In a sign of further uncertainty at the bank, Citi's largest individual shareholder, Saudi Prince Alwaleed bin Talal, told CNBC said he favors bringing back Sanford ''Sandy'' Weill -- the executive who built up Citi through a series of deals -- to lead the company on an interim basis.

Alwaleed, who bought a stake in predecessor Citicorp, long supported Prince through a series of setbacks. But he withdrew that support Thursday when it became clear Citi would report a big write-down, CNBC reports.

Citigroup said it expects to write down billion to billion after taxes -- roughly three or four months of profit -- for its billion of exposure to U.S. subprime mortgages.

The write-down equals billion to billion before taxes, and may rise if markets worsen, the largest U.S. bank said. Citigroup's previous .5 billion write-down related to subprime mortgages, loan losses and other debt.

''I am responsible for the conduct of our businesses,'' Prince said in a memo to employees. ''The size of these charges makes stepping down the only honorable course for me to take as chief executive officer. This is what I advised the board.'' Citigroup, whose capital levels have been called into question, expects by June 2008 to return to normal capital levels, after previously expecting an early 2008 return. It has no plans to cut its 54 cents per share quarterly dividend.

Prince's departure came after he told investors on Oct. 15, four days after an investment banking management shake-up, that the board thought Citigroup had a ''good, sustainable strategic plan,'' and that further management changes weren't needed.

His exit ends a tumultuous four-year tenure marked by heavy turnover among senior executives, questions over strategy, and the mounting loan and credit losses. Problems have also spurred calls for the bank, which has NEW YORK, Nov 5 (Reuters) Citigroup Inc reduced its third-quarter earnings a day after embattled Chairman and Chief Executive Charles ''Chuck'' Prince quit, as the U.S. bank's losses on subprime mortgages and other risky securities climbed.

The latest bad news sent Citigroup shares down 3 percent to $36.58 in pre-market trade.

Citi on Monday said it reduced its earnings to 44 cents a share from the 47 cents reported on Oct. 15. The New York commercial and investment banking giant said the reduction reflects the lower value of $43 billion in collateralized debt obligations (CDOs).

Citigroup, which announced Prince's resignation on Sunday, had said it may write off $11 billion of subprime mortgage losses, on top of a $6.5 billion write-down already reported last month.

Citi Chief Financial Officer Gary Crittenden said a conference call that the collateralized debt obligations that the bank owns are still generating cash flow as expected, even if their value has declined, and so selling the securities now does not make sense.

Following Prince's resignation, Robert Rubin, a former Goldman Sachs partner and U.S. Treasury secretary who chaired Citigroup's executive committee, was named chairman. Sir Win Bischoff, who runs Citi's European operations, was named acting chief executive.

In a sign of further uncertainty at the bank, Citi's largest individual shareholder, Saudi Prince Alwaleed bin Talal, told CNBC said he favors bringing back Sanford ''Sandy'' Weill -- the executive who built up Citi through a series of deals -- to lead the company on an interim basis.

Alwaleed, who bought a stake in predecessor Citicorp, long supported Prince through a series of setbacks. But he withdrew that support Thursday when it became clear Citi would report a big write-down, CNBC reports.

Citigroup said it expects to write down $5 billion to $7 billion after taxes -- roughly three or four months of profit -- for its $55 billion of exposure to U.S. subprime mortgages.

The write-down equals $8 billion to $11 billion before taxes, and may rise if markets worsen, the largest U.S. bank said. Citigroup's previous $6.5 billion write-down related to subprime mortgages, loan losses and other debt.

''I am responsible for the conduct of our businesses,'' Prince said in a memo to employees. ''The size of these charges makes stepping down the only honorable course for me to take as chief executive officer. This is what I advised the board.'' Citigroup, whose capital levels have been called into question, expects by June 2008 to return to normal capital levels, after previously expecting an early 2008 return. It has no plans to cut its 54 cents per share quarterly dividend.

Prince's departure came after he told investors on Oct. 15, four days after an investment banking management shake-up, that the board thought Citigroup had a ''good, sustainable strategic plan,'' and that further management changes weren't needed.

His exit ends a tumultuous four-year tenure marked by heavy turnover among senior executives, questions over strategy, and the mounting loan and credit losses. Problems have also spurred calls for the bank, which has $2.35 trillion of assets, to be broken up because it is too unwieldy.

Prince stepped down five days after Merrill Lynch&Co ousted Chief Executive Stanley O'Neal following a $8.4 billion write-down that was more than 50 percent higher than the investment bank had forecast, in what was also a speedy exit.

Citigroup shares have fallen 32 percent this year, and 17 percent since Prince became chief executive in October 2003.

THE DANCING ENDS Rubin, 69, joined Citigroup in 1999 after more than four years as Treasury secretary, and chaired the bank's executive committee. He has long been a close adviser to Prince, focused on strategy rather than day-to-day operations.

Before joining the Clinton administration, Rubin spent 26 years at Goldman Sachs&Co, becoming co-chairman of the investment bank.

Bischoff, 66, assumed his present position in May 2000 after the acquisition of Schroders Plc's investment banking business by Citigroup unit Salomon Smith Barney. He had been chairman of Schroders since May 1995.

REUTERS PDT BD1945 .35 trillion of assets, to be broken up because it is too unwieldy.

Prince stepped down five days after Merrill Lynch&Co ousted Chief Executive Stanley O'Neal following a .4 billion write-down that was more than 50 percent higher than the investment bank had forecast, in what was also a speedy exit.

Citigroup shares have fallen 32 percent this year, and 17 percent since Prince became chief executive in October 2003.

THE DANCING ENDS Rubin, 69, joined Citigroup in 1999 after more than four years as Treasury secretary, and chaired the bank's executive committee. He has long been a close adviser to Prince, focused on strategy rather than day-to-day operations.

Before joining the Clinton administration, Rubin spent 26 years at Goldman Sachs&Co, becoming co-chairman of the investment bank.

Bischoff, 66, assumed his present position in May 2000 after the acquisition of Schroders Plc's investment banking business by Citigroup unit Salomon Smith Barney. He had been chairman of Schroders since May 1995.

REUTERS PDT BD1945

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