Investing

Chuck Prince's Best Strategy At Citigroup (C)

Chuck Prince is in perhaps the most precarious situation of most Wall Street CEO’s that need to step down.  When I heard the media reports of “EXECUTIVE CHANGES AT CITIGROUP”

early this morning I was thinking for sure Chuck Prince had finally resigned.  Well, the stock is down on the same disappointment today by 2% to $52.60 on what may end up being double the average daily volume (plus the SEC filing on tax issues hurting).  CNBC just interviewed Sandy Weill, the former CEO if Citigroup, and Sandy Weill thinks the business model will come to fruition; Wall Street doesn’t.  Sandy Weill wouldn’t comment on the SEC filing that showed how the SEC is looking investigating the company on taxes. 

One of the reasons that Prince is in such a precarious situation is that he is being pressured across the board to cut costs drastically.  Prince Alwaleed bin Talal, Citi’s single largest holder, has even gone out and called for Draconian cost cut measures and Charlie Gasparino on CNBC even reported that Prince Alwaleed has sent the message that he will call for Chuck Prince to resign if he doesn’t do cost cuts in the immediate future. If the Prince comes out and publicly calls for the ouster of Chuck Prince, he won’t be able to fight the trend and it will put a far worse black eye on his career.

Citigroup is trading lower on the announcement that Crittenden was replacing Sally Krawchek as CFO.  She had already announced he shiftto the wealth management field, so it was just a question as to whowould replace her.  Crittenden came from American Express but since heis being deemed as Chuck Prince’s man the street is not happy even ifhe is more than qualified. 

Obviously, Mr. Weill wasn’t going to come out and say that Princeshould step down as CEO, but Wall Street has taken the stock down sincethe start of the year.  IN December the stock was rallying as therewere hopes that Prince would leave, but shares have slid as Wall Streetis coming to the belief that Prince isn’t going to quietly leave.

If he leaves soon, he would actually leave without too much of ablemished record.  He would easily be able to step into an advisoryrole for private equity firms or even for other banks.  But if he stayshe stays with major risks to his future.  This is a hypotheticalsituation, but imagine if he comes out and announced 10,000 job cutsand a sale of some non-core operations outside of that in order to cutcosts and to save his neck.  He would be despised by those that wouldhave to go to competing banks and would get a poor reputation MainStreet.  Then imagine that on top of that the company manages to notperform as well (either economy slowing, or further SEC issues).  Thatwould yield a full disaster for Prince and his reputation would beruined.  The risks just aren’t worth staying for Mr. Prince.

On my own live CNBC interviewa few weeks ago I had noted that Wall Street was rolling his casketdown the street and that he hasn’t even shown up for his own funeral.He has the shot at resurrecting his career if he does leave.  There isone other solution that could work here.  If he is absolutely insistentthat he has to stay, he could try remaining on as non-executiveChairman for a period of time. 

His salary is listed as $13 million, and he would be able to stay inthe high compensation executive club without many issues.  He would notbe able to have achieved the CEO office if he didn’t have favors owedto him and he would easily be able to go somewhere. Hell, we would beso elated that we might even ask him to come work with us (that wouldbe a twist of fate). He would ‘possibly’ be able to remain at Citigroupas non-executive Chairman for the transition period of a 6 months to ayear or so.  He is not even 60 so he has plenty of years left and hecould save his reputation.  He could even resign stating he doesn’twant to do the inevitable layoffs that he or a sucessor will make, andthen he might even be thought of a hero who sacrificed himself insteadof the thousands of workers.

I have written about this several times, and I have no intent ofcontinuing to belittle a CEO over and over.  He may be the nicest guyin the world, and he might not.  I do not know him personally, but whatI do know is that Wall Street investors cannot stand the job he hasdone and they want him out soon.  If I was in his shoes I would stepdown as CEO effective March 15, I would ask for an approvedtransitionary period where I stay on as Chairman with a nice exitpackage, take a non-compete in banking for one to two years, and offerto help in the CEO transition.  I would also head straight into aglobal private equity firm (after a 60 day vacation) and go make asmuch or more money than as the head of Citigroup.

Four of our 10 CEO’sare now off the list because the announcement has come that they wouldleave.   If he follows this advice it could save his career, butcontinuing to fight the call to leave will be incredibly difficult forhim to survive. 

Jon C. Ogg
February 26, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.