Prince quits as Citigroup chief

Chuck Prince yesterday quit as chairman and chief executive of Citigroup as the company revealed it was facing between $8bn and $11bn of further losses on its holdings of mortgagerelated securities.

Mr Prince said that in the light of the losses stepping down was "the only honourable course" for him to take. The writedowns will put further pressure on Citi's weakened balance sheet, which last week prompted analysts to raise questions about the sustainability of Citi's dividend.

Robert Rubin, the former Treasury secretary who will take over as chairman, said last night: "There are no plans to cut the dividend."

He also said the board and senior management were united behind the strategy pursued by Mr Prince, quashing the hopes of some investors that a change in management could lead to significant disposals or even a break-up of the group.

Sir Win Bischoff, former head of Schroders and now chairman of Citi Europe, will serve as interim chief executive until a permanent replacement for Mr Prince is appointed.

Mr Rubin said the board might ask him to continue as chairman working with the new chief executive or that Mr Prince's successor would also assume the chairman role.

Citi recently announced $1.6bn of losses on its mortgage-backed securities for the third quarter, out of total writedowns and credit trading losses of $3.3bn, which prompted the departure of several senior executives including Tom Maheras, head of all Citi's capital markets operations.

But the value of mortgage securities packaged into collateralised debt obligations has fallen further in recent weeks, sharply increasing the losses Wall Street banks face.

Stan O'Neal was last week ousted as chairman and chief executive of Merrill Lynch, after it estimated it faced writedowns of $7.9bn, almost double the figure it announced less than three weeks earlier. After Merrill Lynch, Citi was last year the largest underwriter of collateralised debt obligations, which are instruments composed of bundles of mortgage-backed securities.

The credit squeeze has left both with large holdings of securities and CDOs, which have fallen sharply in value. Citi said it had $55bn of subprime-related direct exposures in its securities and banking business of which $11.7bn was in its lending and structuring business and $43bn consisted of super senior tranches of CDOs.

The most likely long-term replacement from inside the company is seen as Vikram Pandit, who was recently appointed head of Citi's institutional businesses. However, he has been at Citi for only six months and most observers say an external replacement is more likely. One potential candidate is John Thain, the chief executive of NYSE Euronext, who is also considered a potential successor to Mr O'Neal at Merrill Lynch.

Citi's directors have been under mounting pressure to replace Mr Prince after Citi's lacklustre performance during his four years as chief executive. The shares are now down 32 per cent this year and have fallen 19 per cent since Mr Prince was appointed chief executive four years ago.

What's the damage?