Prince: Bidding adieu

New York, Nov. 5 (Reuters): Citigroup Inc’s problems deepened on Monday as it was unable to assure investors a potential $11 billion write-down for subprime mortgages won’t grow, and its nearly pristine credit rating was downgraded.

The largest US bank also reduced previously reported third-quarter profit because of credit market problems that it said could reduce future cash flow.

Citigroup is also struggling with a void in permanent leadership, following Sunday’s resignation of chairman and chief executive Charles Prince.

Robert Rubin, former US treasury secretary and chairman of Citigroup’s executive committee, was named chairman. Sir Win Bischoff, head of Citigroup Europe, was named acting chief executive.

The announcement of an expected $8 billion to $11 billion write-down, equal to $5 billion to $7 billion after taxes, caused Citigroup shares to fall as much as 5.6 per cent.

Shares of other banks such as Bank of America Corp, Merrill Lynch & Co and Morgan Stanley also fell in early trading, on concern write-downs might not be isolated to Citigroup.

“It shows the clumsiness of pricing mechanisms across Wall Street,” said Michael Holland, founder of Holland & Co. in New York. He said it was tough to value Citigroup “until the dust settles”.

Much of Citigroup’s trouble relates to $43 billion of so-called collateralised debt obligations linked to lower-quality mortgages.

While these “super-senior” securities were once considered rock-solid, investors have stopped buying them, the bank said.

“There’s no way I think anyone can give you an assurance of how things are going to move,” chief financial officer Gary Crittenden said on a conference call. “We’ve taken what we think is a reasonable stab.”

Fitch downgrade

Fitch ratings cut Citigroup’s credit rating to AA, its third-highest grade, from AA-plus, citing “severe pressure” on capital market operations and “an inhospitable consumer credit environment” as mortgage delinquencies soar.

Its outlook is negative, meaning another cut is possible in two years. Standard & Poor’s may cut its own AA-plus rating.

Citigroup also lowered third-quarter profit to $2.21 billion, or 44 cents per share, from the reported $2.38 billion, or 47 cents. The reduction means profit fell 58 per cent from a year earlier, and brought the quarterly write-down to nearly $6.8 billion.