Citi's Chuck Prince Again Under Fire

The NY Times this weekend detailed Citigroup's (C) CEO's missteps since he took office.

The article made 6 essential assertions:

* Citigroup stock has not moved from essentially where it was when Prince took over in 2003.
* Citigroup's corporate strategy is flawed. The idea behind predecessor Sandy Weill's acquisition strategy was to create an organization which would be able to earn consistently high profits because when one business unit was doing poorly, another one would take up the slack. But the latest earnings miss shows otherwise, problems in the mortgage market hurt Citigroup's consumer and fixed income units. With the deal financing business at a standstill, yet another pillar of Citigroup's corporate strategy is evaporating.
* Citigroup has had five significant blow ups since Prince took over. Recently, Citigroup warned that it planned to take a $5.9 billion write down in the third quarter, causing a 60% profit plunge. This was the fifth time since becoming CEO that Prince had to disclose a major problem to his board.
* Citigroup lacks management depth and one reason Prince has held on so long is that his direct reports are so weak. Some analysts in the past have described it as a convenient survival tool for the bank’s chief executives. Neither Mr. Weill nor John S. Reed, who also ran Citigroup before Mr. Prince, ever really tolerated the presence of strong No. 2’s. After Robert B. Willumstad left his post as chief operating officer in 2005, that crucial job remained unfilled for over a year and a half.
* Citigroup does not have a handle on its finances. This summer the depth of Citigroup's ignorance about the risk on its balance sheet became ever more apparent. Citigroup's problems grew more serious with prices of subprime mortgage bonds and other complex securities deteriorating rapidly. But despite hiring a highly touted outsider as CFO, it appears that Citigroup still lacks a specific understanding of how deep the hole is likely to be.
* Citigroup lacks financial discipline. Prince has been slow to fire executives overseeing money losing operations and has been slow to lead any executives to the chopping block, even though top-level firings have already taken place at UBS, Bear Stearns and Merrill Lynch.

Here is the thing. Everything said by the Times is true. But, and this is a big but, Citi did have two consecutive quarters before this upcoming one in which it surprised the street to the upside and made progress against all these former shortcomings. Prince has the public backing of major shareholders and almost every financial institution got hammered recently by the sub-prime issue. Consider Lehman (LEH), Morgan (MS), Bear Sterns (BSC), Goldman Sachs (GS), Washington Mutual (WM), Deutche Bank (DB) and others all got hit hard and took massive write downs in this area. It would have been shocking had Citi NOT had issues. The fact that his firm was one of a bout a dozen major institution that got caught will give Prince a pass this time and allow him to keep his job for now.

This is where it gets tricky. He is on record saying Q4 will be "much better" and all but promised shareholders will be very happy about it. This now makes it "do or die" for him. If Citi stumbles in Q4 then the Q's 1 and 2 were just the aberration and more shareholder disappointment from him is on the way and he assuredly will be shown the door. If Citi comes through, then Q3 was the aberration this year and Prince has essentially put together a good year for the bank considering the performance of other institutions and this may just be enough to allow him to stick around.

Q4 has to be very good , not just good for this to happen though..