Transcripts

The Shake Up at Citi Sends Shockwaves Through The Financial World

SUZANNE PRATT: The turmoil at Citigroup continued today even in the wake of Chuck Prince's departure as chairman and CEO. Shares of the nation's largest financial services firm fell almost 5 percent in reaction to Citi's admission that it will write down as much as $11 billion in losses related to the sub-prime mortgage crisis. The firm also plans to restate its third quarter earnings. Scott Gurvey looks at the outlook for Citi.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the resignation of Chuck Prince of Citi coming right on the heels of the resignation of Stan O'Neal at Merrill Lynch, the second shoe has fallen. The problem facing Wall Street is the fear the sub-prime monster has more than two feet. Analysts believe there is more bad news to come as the financial sector tries to mark to market investment instruments originally sold for hundreds of billions of dollars. Frank Braden of S&P says some of these packages are so complex, they have no liquid market.

FRANK BRADEN, FINANCIAL ANALYST, STANDARD & POOR'S: It's not a very transparent business. To this point in time, a lot of businesses haven't been very forthcoming with their exposure. Citigroup did a little better job today of explaining exactly what their positions were and marking those positions to where they think they should be valued. But there is a lot of uncertainty as to where the market goes from here.

GURVEY: In the end, Prince took the rap for the 35 percent decline in the value of Citi's share price since the start of the year. The company is also taking between $8 and $11 billion in write-downs for the third quarter and cutting its already reported third quarter results by $0.03 a share. But Citi and Merrill are not alone. Analysts say Bear Stearns, Morgan Stanley and Bank of America are among the other big financial firms with large exposure to mortgage securities and other debt pool instruments. They see weak fourth quarter earnings and more write-downs throughout the financial sector, which may explain why Citi has turned to insiders Robert Rubin and Sir Win Bischoff to run the company on an interim basis, and why executive search expert John Challenger says filling the shoes at Citi and Merrill will be difficult.

JOHN CHALLENGER, CEO, CHALLENGER, GREY & CHRISTMAS: You want someone who has been in a role that suggests that he or she could handle the challenges that are in front of these companies, so specific experience in regards to risk management, the biggest problem facing these companies, as well as a high-profile executive that is going to reassure the markets that this person is going to know what he or she is doing.

GURVEY: Challenger also says, the sooner the new CEO is selected, the better. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.