Citigroup Inc. will take subprime related charges of as much as $11 billion as its chairman steps aside and a former Clinton Treasury secretary steps in.
The New York-based company Sunday announced a decline in the fair market value of $55 billion in U.S. subprime related securities. "Super senior tranches" of collateralized debt obligations account for $43 billion in mostly residential mortgage-backed securities, and direct subprime exposure makes up around $12 billion.
"Citi estimates that, at the present time, the reduction in revenues attributable to these declines ranges from approximately $8 billion to $11 billion ... representing a decline of approximately $5 billion to $7 billion in net income on an after-tax basis," the statement read. "The impact on Citi's financial results for the fourth quarter from changes in the fair value of these exposures will depend on future market developments and could differ materially from the range above."
Post third quarter market activity, as well as a series of ratings downgrades were blamed for the sudden disclosure.
The company said it won't report any further financial data until January, when it announces fourth quarter activity, and warned investors not to expect financial projections in the future.
In a separate announcement, Citi said it replaced Chairman and Chief Executive officer Charles Prince.
"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," Prince said in the statement.
Prince started his Citi career as an attorney for Commercial Credit Co. in 1979 under retired Citi chief Sandy Weill. Through acquisition deals with the Travelers Group and Citibank, Prince succeeded Weill as chairman in 2006 after former rival James Dimon lost his heir apparent status following a falling out with Weill.
Dimon is now chief of JPMorgan Chase, largely unscathed by the subprime fallout.
Harvard graduate Robert E. Rubin, the 70th U.S. Treasury Secretary under President Clinton, will now serve as board chairman, the statement said, while Sir Win Bischoff, Chairman of Citi Europe, will temporarily serve as chief executive officer while a new CEO is found.
"The board and I have tremendous respect for Chuck's leadership and his accomplishments over the years in helping to develop the company's culture, Rubin said in the statement.
Rubin said a special unit has been create separately from capital markets and banking business, to solely focus on managing subprime assets.