The chairman and chief executive of the Citigroup bank, Charles Prince, has resigned and will be replaces by former US Treasury Secretary Robert Rubin it was announced.
Investor calls for Mr Prince to go have increased since the bank reported a 57% drop in quarterly profits, after losses in the sub-prime mortgage market. He is the second head of a leading US bank to step down within a week. The head of Merrill Lynch, Stan O'Neill, resigned after reporting heavy losses. "Given the size of the recent losses in our mortgage- backed securities business, the only honorable course for me to take as chief executive officer is to step down," Mr Prince said on Sunday. The board of Citigroup paid tribute to him, with Alain Belda saying: "We thank Chuck for his unwavering commitment to Citi, its employees and its shareholders." The latest spate of poor earnings reports from US banks have prompted concerns that the worst of the credit crisis may be yet to come. Speculation about the future of Citigroup has intensified since Friday, when the Wall Street Journal said the firm's board was set for an emergency meeting on Sunday. Shares ended the week 2% lower by close of trade in Friday in New York, at $37.73. In the three months to the end of September, net income dropped to $2.38bn from $5.51bn a year earlier. At the time of the results Mr Prince said: "A significant amount of our income decline was in our fixed-income business, where we have a long track record of strong earnings, and this quarter's performance was well below our expectations." On October first Citigroup had projected a 60% drop in quarterly earnings. "This was a disappointing quarter, even in the context of the dislocations in the sub-prime mortgage and credit markets," said Mr Prince. On Monday morning, Citigroup shares rose 5.8% in value on their Japanese stock market debut, hours after Mr Prince's departure was confirmed. From a tentative starting price of 4,330 yen, based on Friday's New York close, they traded at 4,580 yen. Citigroup has been one of the most active participants in the sub-prime mortgage-backed securities market, buying billions of dollars worth of mortgages and then selling them on to international investors. But since August the credit market for these types of securities has frozen up, leaving many big banks holding unsold mortgage securities whose value has taken a tumble. The lack of a market has made it difficult for companies to evaluate the size of their potential losses. Overall, there are over one trillion US dollars worth of sub-prime mortgage-backed securities outstanding, and the Federal Reserve has estimated that the financial sector as a whole could lose at least 100 billion US dollars.