Another one bites the dust. Citigroup’s Charles Prince resigned Sunday night in the aftermath of Citi’s horrendous third-quarter earnings report (including a $6.5 billion mortgage-related write-down, and expectations of an additional $8 billion to $11 billion in write-downs to come).
While a new leader is sought, Senior Vice-Chairman Robert Rubin takes over as chairman of the board (read the New York Times story on the challenge Rubin faces ), and Sir Win Bischoff, head of Citi’s European operations, will act as CEO. (One wonders why Rubin emerged unscathed, considering he leant his prodigious genius as chairman of the bank’s executive committee. See hedge-fund manager Doug Kass’ criticisms of Rubin also in today’s Times.)
Inside Smith Barney, the firm’s brokerage arm, Prince’s departure means little to the brokers—who’ve had a tough year of their own. As is often the case with brokers at the wirehouses, brokers say executive changes have little effect on their business as long as the head of the unit remains in place. As far as anyone knows, Sallie Krawcheck, head of Global Wealth Management and Charlie Johnston, CEO of the Private Client Group, aren’t going anywhere as a result of Prince’s departure. Smith Barney’s problems for the past year, according to reps, have revolved around compensation (for more on the firm and Krawcheck, see Rep.’s March 2007 cover story).
The nation’s second-largest brokerage firm (by reps) lost several dozen FAs in the past year after management made significant changes to the way brokers get paid. But according to reps, the new compensation plan—announced in February—has apparently calmed brokers’ nerves. “They [the firm] got their clock cleaned when the old plan was announced,” says one rep, referring to the number of good advisors that left soon after. “But they’ve fixed it, and they’ve gone above and beyond what they needed to do in doing so,” he says. Prince’s exit is a non-event, he says, unless the stock tanks further or the firm splits up.
Prince has been under fire from investors for a long time because the stock—down a third so far this year, and 17 percent since his arrival—consistently lagged behind its peers (see a 5-year stock chart). But according to Punk Ziegel Analyst Dick Bove, an ardent supporter of Prince since his arrival, getting rid of Prince wasn’t the answer. He calls his resignation a “major negative” in his research report today, listing more than a page’s worth of his accomplishments, including restoring the firm’s faith in its ability to grow internally. But Bove is in the minority. Glenn Schorr, an analyst for UBS, sums it up thus: “It’s smart for Citi to do this now as two other large financial companies have just begun CEO searches of their own,” he writes, adding that Citi “might as well compete for the best people at the same time.”