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Citigroup Faces Fallout from Subprime Market

Citigroup, the nation's largest bank, faces both a downgraded credit rating and the resignation of CEO Charles Prince. A business journalist describes the company's struggles.

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    The subprime mortgage mess continues to claim big-name corporate victims. The latest to fall is Charles Prince, the chairman and CEO of Citigroup, the nation's largest bank. He resigned under pressure yesterday.

    The company has announced it will write off between $8 billion and $11 billion due to a drop in the value of subprime-related securities. Former Treasury Secretary Robert Rubin, a top Citigroup executive, was named chairman. And Sir Win Bischoff, the head of Citigroup Europe, was named interim chief executive.

    Will the dominoes continue to fall? For that and more, we turn to Roben Farzad, senior writer at BusinessWeek magazine.

    Welcome back.

  • ROBEN FARZAD, Editor, BusinessWeek:

    Hi, Gwen. How are you?


    I'm fine. Last week, we heard about Stanley O'Neal. This week, we're hearing about Charles Prince. What's similar and what's different about these two dominoes falling?


    You know, sadly, it's a continued purging, but Citigroup is a far bigger animal than Merrill Lynch is. Merrill Lynch is an icon of Wall Street; Citigroup is that 300,000 strong, 100-nation financial supermarket. And it is the largest U.S. bank in terms of asset size. So its tentacles reach out everywhere around the world, so any time something like this happens, naturally the entire sector is very nervous.


    Well, $11 billion sounds like a lot of money to most of us. Does this mean that Citigroup is pretty shaky now?


    The worry is that it's the tip of the iceberg, because we know plus or minus $55 billion in mortgage-related securities sit on Citigroup's books. Now, we thought a couple weeks ago that this write-down, that it might have to take a $5 billion charge for some of these bad loans. That $5 billion turns in $11 billion.

    And management in the call yesterday — actually, it was an odd weekend announcement, and people were speculating Friday that there would have to be a shake-up — said we're not sure that this is the end of it. I mean, it depends on the market coming back. It depends on the vagaries of the housing market and whether this credit crunch on Wall Street will subside. So there are more questions asked than answers, really, in this.