The Nov 4 New York Times below reports that "Citigroup's board is highly likely to nominate Robert E. Rubin,... as its interim chairman," at its emergency Sunday board meeting. Rubin would replace Citigroup CEO Charles Prince III, who reportedly has been forced to resign. Prince's resignation, if confirmed, would be the second resignation, within the past 96 hours, of a CEO at a major U.S. financial institution, following that of Merrill Lynch CEO Stanley O'Neal.
The Citigroup shake-up follows a deepening melt-down at the world's either first or second largest financial institution. Under Prince and his mentor, the previous Citigroup CEO, Sandy Weil, Citigroup wildly expanded, increasing its total assets from $1.09 trillion in 2002, to $2.35 trillion at the end of the third quarter of 2007, a doubling in less than five years. Often, Citigroup invested heavily in financial markets shaped by and under the domination of the City of London financiers.
Citigroup has the following speculative investments:
- $80 billion in radioactive, off-balance sheet Structured Investment Vehicles (SIVs). Altogether, Citigroup has 7 SIVs, with names like Dorada and Sedna Finance, 4 of which were created in and are steered from the Cayman Islands.
- $60 billion in off-balance sheet Conduits, which are also speculative vehicles, operating under slightly different rules.
- At least $20 billion in Collaterialized Debt Obligations (CDO).
- More than $70 billion in assets-backed securities, based on credit card cash flows.
All of these markets are either outright catering disaster, or facing serious problems. The most problematic are the SIVs. An SIV must by law have sufficient paid-in equity (the value of the stock that it sold), such that the equity represents "stored funds" which could cover those losses/writedowns suffered on the SIV's senior debt. To state it simply, were the losses on the SIV's senior debt to exceed the value of the SIV's paid-in equity, the SIV must effectively be shut down. It appears that some of Citibank's SIVs, are headed toward or may have crossed the danger line, had strict accounting principles been in force.
On Thursday Nov. 1, Canadian Imperial Bank of Commerce analyst Meredith Whitney stated that Citigroup would have to increase its capital by $30 billion to cover problems. The statement, which is true, caused tremors throughout the international financial system, and there was a mass dumping of Citigroup stock, which led to the Dow Jones average dropping by 362 points.
This precipitated widespread fear, and prompted the U.S. Federal Reserve, through three separate interventions, to inject $41 billion in short term liquidity into the U.S. banking system--all on Nov. 1, the largest one-day intervention since September 2001, after the 9/11 attacks.
The Citigroup situation is made more dangerous by two further problems. First, were there ruptures at Citigroup, this could detonate its derivatives holdings of $34.9 trillion in notional value, which would bring down the world's $750 trillion-plus derivatives market, and the entire world monetary system. Second, Citigroup is America's largest bank, and thus at the heart of the world's dollar-based system. A melt-down here would have many other far-reaching consequences. <SNIP>
November 4, 2007
Ex-Treasury Chief Robert E. Rubin to Fill In at Citigroup
By ERIC DASHCitigroup’s board is highly likely to name Robert E. Rubin, the former Treasury secretary and an influential adviser to its embattled leader, as its interim chairman at an emergency meeting today, according to a person briefed on the situation.
The move is intended to reassure Wall Street while the board looks for a new chief executive to replace Charles O. Prince III, who is expected to resign as chairman and chief executive as early as today. The company has suffered major losses as a result of its large exposure to bad loans and mortgage-related securities.
A group of core executives will remain in their places, but the board still needs to determine whether to appoint an acting chief executive or a committee of top executives to oversee the bank, this person said. That suggests that while Mr. Rubin’s responsibilities will broaden, he continues to balk at supervising the bank’s daily operations. Mr. Rubin has long insisted that he does not want to take over as chief executive.
Christina Pretto, a Citigroup spokeswoman, declined to comment. Mr. Rubin also would not comment.
Mr. Rubin’s standing at Citigroup has long been contentious. In better times, his role as a board member and chairman of the bank’s executive committee was often referred to as the “best job in the world.”
He has collected more than $150 million in cash and stock over eight years to serve as the bank’s elder statesman, meeting with important clients and building relationships with government and business leaders around the world, though his contract states that he is to have no daily operational responsibilities.
<MORE>
http://www.nytimes.com/2007/11/04/business/04bank.html?n=Top/News/Business/Companies/Citigroup%20Inc.&_r=1&pagewanted=print
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