The chief executive of Citigroup Inc. stepped down Sunday, the second Wall Street CEO in a week to leave his post as the subprime mortgage crisis continues to cause problems at major firms. The nation’s largest banking company also said it would write off $8 billion to $11 billion in additional mortgage-related losses.
Citigroup’s board of directors on Sunday appointed Robert E. Rubin, the current head of its executive committee, to serve as chairman of the board. Win Bischoff will serve as acting CEO.
The company’s former chairman and CEO Charles Prince announced his resignation during an emergency board meeting Sunday.
“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 a statement.
Wall Street investors profited from mortgage-backed securities during the housing boom, but began to see problems as many of the securities — especially those backed by subprime loans — started defaulting or foreclosing.
In late 2006 and early 2007, many investors began noticing the deteriorating quality of mortgages they were holding onto in securities and started demanding lenders buy back swaths of bad loans. The result was a tightening of lending standards which has restricted access to credit for many home buyers, especially those with spotty credit histories.
Many banks, lenders and investors have taken enormous losses related to problems in the subprime mortgage market, and home sales have also slowed significantly in the nation’s real estate markets as a result.
Citigroup’s Rubin on Sunday said that the bank will set up a separate unit to manage the assets related to subprime mortgage securities and other related exposures.
“This unit will be separate from the other parts of our capital markets and banking business,” Rubin said in a statement.
Citigroup said it will continue to search for a new CEO.
Prince’s resignation came just days after Merrill Lynch & Co. announced the ouster of Chairman and CEO Stan O’Neal, and the firm’s $8.4 billion write-down, which stemmed from mortgage-related losses.
For an in-depth look at what went wrong in the subprime mortgage market, see Inman News’ four-part Special Report, “Subprime Tsunami.”