Why is Prince leaving now? He clearly could have hung on if he wanted to. There is some speculation as to nefarious things that will come out soon, others saying that he was doing the mature thing, that the handwriting was on the wall.

Alternative theory: the powers that be want Thain if they are going to have to have a new CEO. So Prince had to go once O’Neal was toast.

Both Rubin and John Reed have close relationships with him.

There may have been fear that Merrill would succeed in getting him if they waited too long. And Thain is far and away the best candidate. He ran a substantial mortgage-backed trading at Goldman, so he knows trading and operations, and is considered to be an excellent manager, which is rare on the Street. I know him from years ago and at least then he was an unusually decent fellow.

Thanks for the thoughtful comment. Weill was undoubtedly a smart acquirer and built a talented core team, but whether it was the right team for Citigroup is an open question.

One thing that is hard to reconcile, and to his credit, Weill was able to do it to some degree, was reconcile the commercial banking and investment banking cultures.

I had Citi as a client a long time ago, ironically in its money markets division (later some other trading ops and an investment banking unit), which was as close as it got to a securities operation and got as close to Wall Street as you could get in a bank in those days (example: to the consternation of all, Wriston gave the head of the MMD the second highest comp in the bank, which put him way out of line relative to his formal rank, which was really contrary to commercial banking practice).

The cultures of banking and securities businesses are radically different because the nature of the underlying businesses are different (we’ll for the moment exclude the trading operation of banks).

People in securities firms get/have to make decisions, some many in a day, that have bottom line impact. So who you hire and promote, MIS, risk controls, and incentives are very important. Managers typically supervise relatively few people, and supervising is less valued than producing.

Banking, by contrast, is about control repeatability, processes. Only fairly senior people make decisions that can affect the bottom line. That’s why a systems guy like Reed was so successful. And ability to manage large groups of people is prized.

It’s ironic that you call Citi clubby. Compared to Travelers, that may be true, but Ciiti was the most aggressive and innovative bank by a considerable margin. It pushed all the regulatory boundaries, invented swaps, caps, and collars, had (and may still have) one of the biggest and most successful international operations. Having worked with other banks, its staff was smarter and much harder working by a considerable margin than the norm.

In fact, Citi’s tendency to be aggressive has gotten it repeatedly in trouble. It was front and center in the sovereign debt crisis of the 1970s, nearly went under in the S&L crisis, and now has the SIV and God knows what other messes.

As for Rubin, you are right that if he was Prince’s sponsor he should have coached him better, But remember that Rubin was co-head of Goldman in a very different era. He was co-COO from 1987 to 1990, and co-chief from 1990-1992. The firm went through its first major downsizing then, which was hugely traumatic and seen as a violation of the culture. Although the firm had a solid fixed income operation, that had not become the huge business that it became in the 1990s. Even though Rubin was a risk arb, the kind of risk analysis you do in that field is vastly simpler than what you do in more complex instruments (and does not require higher math).

So that is a long-winded way of saying that Rubin might not have fully appreciated the risks either until they were already evident.

A few comments on your comments, leaving Rubin for last.

When Travelers merged with Citicorp, the result was a giant company with two cultures.

Weill had created the Travelers culture, which was all about financial results, leading ultimately to enhanced shareholder value. Compensation too, but a lot of that compensation was in the form of shares. Weill more or less forced his people to buy as many shares as they could, and he let it be known that they were not to sell them, ever.

In the Travelers culture, you cut to the chase, did what needed to be done as quickly as possible, shook things up, innovated, and attacked inertia wherever you saw it.

At Citicorp, John Reed “controlled the logic” but let his people implement it. It was a combination of innovation and enrepreneurship on the one hand and a formal, genteel, old-fashioned banking culture on the other. Many Citibankers were downright anal in their observance of rules, procedures, and precedents.

But in exchange for your cautious and prudent devotion to the Citicorp way of doing things, you were a respected member of a club. It was a privilege that was earned. You were not only allowed to have a life, the company wanted you to have a good life. You had generous benefits, vacation time, personal time if needed, reasonable hours, comfortable surroundings, genteel colleagues.

Sandy dismantled the Citicorp culture. Whether that culture could have survived or should have is debatable, but Sandy and the Travelers guys (and gals) took charge, and their corporate culture was imposed on the whole.

Sandy had the ability to be a micromanager, but not necessarily the time, by definition. He seemed to know more about everyone’s operation than they did. But they knew he didn’t have time to do everything and that he needed them to run their businesses themselves.

Until Sandy handed the CEO title to Chuck, he had not actually driven a lot of talent out at the highest level. While Sandy was the sole CEO, the only possible example that comes to mind is Jay Fishman, but I don’t think Sandy drove him out. Fishman left to take charge of another company, and I think he knew or suspected that things would play out as they have, his company merging with the divested Travelers and him as Chairman and CEO. And Fishman probably didn’t like his odds or the timeline for succeeding Sandy.

Otherwise, Weill had a very deep bench at the top. This included Chuck Prince, Bob Willumstad, Todd Thomson, Bob Druskin, Mike Masin, Tom Jones, Mike Carpenter, Derek Maughan, Marge Magner, Victor Menezes, Sally Crawcheck, Ajay Banga, and others.

The great loss of bench strength has occurred since Prince became CEO. Those departing have included Willumstad, Thomson, Masin, Jones, Carpenter, Maughan, Magner, Menezes, and others. To an extent this was not surprising, given that some of these executives had stayed on in the hope of succeeding Weill or working closely with whoever did. But there is the appearance that some of these executives were eliminated because they were possible alternatives to Prince.

Prince had the right background to clean up the reputational mess that arose during the late nineties and after, which I honestly think occurred on Sandy’s watch without him quite realizing it was happening. But while Prince was cleaning up that mess, he did not recognize the financial reality of what Citigroup was doing in certain areas.

I think Rubin should have protected Citigroup from those things. If he warned Chuck and the board about what is now happening, then he did his job, and he’s golden as usual. But if not, why not? Did he not see it? Hard to believe.

I’m with you on the co-head idea: forget it.

Is Citigroup unmanageable? The question is only meaningful if life as we know it goes on for some time to come. If the financial system, the economy, and perhaps society in general are on the brink of disaster, then who cares?

If life goes on, I say there are only a few people who can manage Citigroup, and those people might indeed decide to break it up, or at least shed the Wall Street piece. One of those people is Bob Rubin, even if the company’s current troubles escaped his notice as they developed. After all, he doesn’t run the company, and as far as one can tell, the terms of his employment do not make him accountable for the company’s performance.

I admire Rubin and would like to see him take charge of Citigroup. I see it reported now that he is “reluctant” to take the job. That’s quite different from what he told the Times five years ago, namely that he “would not” be Citigroup’s CEO.

Maybe they’ll bring Willumstad back. They could do a lot worse. I see some news about his current company this weekend as well.

We’ll know more soon.

- Anon of 1:26 PM (yesterday)

Juan de la O

Please don’t feel a need to get worked up before you blog. Some of us don’t come for the indignation, we come for the analysis and insight emitted by that excellent mind of yours.

Truth is, we don’t really want to be edified, we just want to understand things and maybe have a clearer notion of what’s going to happen tomorrow.

1) To second Anon’s comments above: both Merrill and Citi suffered from wholesale sackings at executive levels after 2001. You don’t need talent and experience in bull markets-any ‘bright sparks’ will do nicely. Downturns call for ’steady hands’…unfortunately, there are v few people left who fit this description
2) Pls take some time off; recharge. Apres vous, le deluge!

CrocodileChuck

The problem with these bloody CDO deals is you can’t get the documents through Edgar, but I am pretty certain that the insurers don’t play a role in structuring (although they would have to be consulted as to what their price would be to make sure the deal structure works). But keep in mind that they aren’t the only game in town. Overcollateralization and credit default swaps were the other common ways to credit enhance structured finance deals.

But the impairment of the monolines in particular would be a big deal, since they also provide guarantees on municipal bond deals, and there aren’t as many alternatives there.

Anon of 11:42 AM,

Thanks for the tidbits on Krawcheck. I was going largely on instinct (her experience vs. what those big jobs entail) so appreciate the intelligence. I did see her back when she was at Bernstein as a mere Wall Street industry analyst. She was a great analyst and very charismatic. This may be a case of Peter Principle in action.

Anon of 1:26 PM,

Someone will probably do a story on the gory details of Prince’s demise. But you are right, Rubin is quite a mystery. He is a master politician, and was probably unwilling to continue to back a losing horse.

I have been told by old Citibankers that Weill destroyed the culture. It had been very entrepreneurial, with profit centers that had a lot of autonomy if you followed the rules and delivered good results (of course, Citi sometimes didn’t have enough rules, but that’s another story). Weill was a micromanager and drove a lot of talent out.

Prince clearly did not have the right background, even though that wasn’t evident on paper. Working under Weill meant he had had limited authority. And with Weill having effectively gutted the management ranks, he didn’t have enough strong subordinates to shore him up.

There is also a question as to whether Citi is too big and in too many businesses to be managed properly. A buddy who used to work at Citi at a very senior level and is an expert on board/leadership issues argues that big diversified financial firms need co-heads at the top, because there are too many businesses that require expert knowledge for one person to have enough scope.

It is so hard to make the co-head thing work that it says to me these firms are too broad (in econ-speak, they have diseconomies of scope).

Here’s CR – get thee hence!

http://calculatedrisk.blogspot.com/

Yves: Great, great blog. Hang in there.

To all: Chuck Prince is out. Wasn’t Rubin supposed to be a guardian angel of sorts to the company? What happened? If he doesn’t take charge now, can they justify keeping him in place?