Citigroup — Company of the Day
Today’s Company of the Day is Citigroup.
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With apologies to the late Senator Everett Dirksen*: If you write off a few billion here and a few billion there, pretty soon you’re talking about serious money. That’s the way things look this week for financial services titan Citigroup, which gave the markets a bitter piece of news on Monday when it announced that it would write off $5.9 billion in bad investments associated with the ongoing meltdown in mortgages, mortgage-related financial instruments, and the consumer credit market. That “serious money” will knock 60% off of Citi’s earnings for the quarter.
It may also spell the end — or the beginning of the end — for Citigroup CEO Chuck Prince. While Prince is generally well-regarded in the financial community, he almost couldn’t help but suffer by comparison to his predecessor Sandy Weill, the empire-builder who made Citi what it is today. The tepid performance of the company’s shares during Prince’s tenure (he took the reins in 2003) leaves much to be desired, especially when held up against the solid gains of peers like JPMorgan Chase and the huge success of Goldman Sachs. While the financial world discusses Prince’s fate ever more noisily, former Citi executive Jamie Dimon, who rose to prominence as Weill’s right-hand man in the 1990s, looks to be sitting pretty on his perch atop JPMorgan further down Park Avenue.
Beyond the personal comparisons, Prince and his subordinates face the harsh reality that Goldman — Citi’s top-dog counterpart among the investment banks — faced the same destabilizing market forces that it did, yet just reported one of the most profitable quarters in Goldman’s long, long history. Sandy Weill’s vision for Citigroup was that its great reach and diversity of operations would spread risks around and allow the company to thrive in any market weather. The theory may be sound, but as Chuck Prince could tell you, the devil is in the details.
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Despite the poor results for Citigroup’s quarter, its shares traded higher yesterday. More details from this New York Times story:
The prevailing logic seems to be that the worst is over, since Citi and its peers have now cleared most or all of the worst effects from the mortgage and credit crunches from their books.
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* It turns out that Dirksen may not have said “A billion here, a billion there, and pretty soon you’re talking about real money,” although the saying certainly matched his sentiments about the free-spending ways of the US federal government. For more information, check out this informative page from The Dirksen Congressional Center.
Category: Company of the Day, Finance & Real Estate4 Comments so far
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Although Chuck Prince is facing tremendous pressure to resign, information from this Knowledge Map from NewsVisual http://www.newsvisual.com/newsvisual/2007/10/management-expe.html suggests that the management experience of the rest of the Board should allow them to turn the company around fairly quickly.
Jon — Citi has the kind of all-star board you’d expect to see for a company of that size . . . but what does that have to do with the company’s ability to turn itself around? Given previous management moves there, what are the odds that the company would seek to replace Prince with someone besides a current Citi senior exec? (My guess: *slim*.)
If Prince goes, it won’t be Deutsch or Mulcahy — capable though they are — who will be running the company. Bob Rubin’s a possibility (since he’s been a banking CEO before), but it would likelier be someone like COO Bob Druskin, CFO Gary Crittenden, or even (though her star has fallen lately) division chief Sallie Krawcheck.
Maybe you’re trying to make a point here that I’m missing, though. Care to elaborate?
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