So who is on this list of 14 companies under investigation by the FBI for their involvement in the subprime mortgage crisis? The FBI apparently intends to keep us in suspense because they won’t give details. All we know is that they are looking into “allegations of fraud at various stages of the mortgage process, from companies that bundled the loans into securities to the banks that ended up holding them.”

So let’s recklessly speculate. Two companies that are sure to be on the list are Bear Stearns—which is already under investigation by federal prosecutors and the SEC—and Countrywide, which is both the biggest home loan lender and also facing an SEC inquiry. Goldman Sachs is very likely on the list. It was accused on the pages of the Sunday New York Times of misleading clients by packaging CDOs while shorting the mortgage market. We know that at least one Senator read the article and has been making a stink, and we know that federal investigators often get their leads by reading the paper. What’s more, Goldman Sachs has said that it is cooperating with an unnamed government agency.

Morgan Stanley has also admitted to cooperating with unnamed government authorities. At first, everyone assumed this was the SEC. But why wouldn’t they come out and say that? More likely they declined to name the agency out of fear that saying they were cooperating with the FBI would tar them with serious criminality—rather than the everyday Wall Street shenanigans implied by an SEC investigation.

So that gives us four good leads. Who else is a cylon on the list? No doubt some additional mortgage companies and some home builders. Maybe the ratings agencies are also. Leave your guesses in the comments section below.

FBI Launches Subprime Probe [Wall Street Journal]

High ranking sources at Citigroup tell belated-birthday boy Charlie Gasparino that CEO Vikram Pandit is in favor of keeping the comically overweight bank large and in charge (the exact phrasing was "Jiminy Glick-esque"). This is crazy and maybe worthy of a siren because no one at Citigroup has ever expressed resistance regarding breaking up the big C. This is completely new and radical. This is such a drastic change in ideology from the last couple of Citigroup CEO's that CNBC insiders say Charlie's been wearing one of those foam neck braces to deal with the ensuing whiplash, though that probably has less to do with shock vis-a-vis Citi and more to do with trying to make a killing at his small claims court appearance later this afternoon, when he'll argue that "that guy came out of nowhere and rear ended me and I'm not leaving without my fucking money."

So this is the much vaunted kitchen sink? Citigroup took a $18.1 billion write-down in sub-prime related assets. But as they just discussed on the conference call, Citi still had $37.3 billion in direct and indirect subprime exposure at the end of the quarter. That's still a lot of risk on in asset classes that no-one can confidently value. Even Citigroup admits that it is just looking at the ABX and making intelligent guesses.

If we're following this correctly, Citi began the quarter with $55 billion in exposure to subprime and ended with $37 billion. A huge chunk of the $55 billion was in CDOs, which the company had valued around$42.9 billion. It sold $800 million (although it's not clear what the discount against book was) and wrote-down a whopping $14.3 billion. Our high level quant skills tell us this leaves Citi with $29.3 billion in CDO exposure. That's not quite the coming clean balance sheet the bulls were talking about yesterday.

What's worse, Citi's chief financial officer is stressing that there is no market against which to mark these asset backed CDOs. So these write downs are just mark-to-model. Educated guesses by the folks whose educated guesses got us into this mess in the first place.

You can already hear the people who got long on Citi yesterday running for the doors.

Update: Well, that call did not end pretty. There was a lot of talk about how the Citi team needed to impress investors by putting forth a new plan for the future and demonstrating they have a clear grasp of the risks faced by firm, particularly in the credit markets. The Q&A portion of the conference call pretty much did the opposite, with the chief financial officer having to admit many times that he either wouldn't comment or didn't know the answer to detailed questions about credit market exposure. Merrill's Guy Moskowski asked about what the original par value of the CDO portfolio. Crittenden said he didn't know. How about specifics on modeling versus market tests? Nope, just more hand-waving. Bess Levin favorite Meredith Whitney asks about CDO valuations and Crittenden declines to confirm her estimates. Ron Mandel asks about the ABX but Critter doesn't have the answer to that either. I guess we can give him Socratic credit for knowing what he doesn't know. And at least Pandit didn't end it by saying, "Let's get the fuck out of here."

So much exciting stuff going down at Citi this week. Charlie “No Sleeves” Gasparino reports that on Tuesday, the bank will unveil its genius plan to write-off $24 billion and lay off 20,000 employees. Some might even be canned as early as this afternoon. Do you sense you might be in that enviable position of no longer having to tell people you work at Citigroup? Got any idea what the severance might be like? Let us know. Thinking about choreographing some sort of performance piece in reaction to the news? Let us know. Considering that China made the first in a three-part series of phone calls over the weekend to say it doesn’t want to be seen with Citi (Bear Stearns, sure, no prob), capital that Pandit was apparently banking on in order to keep layoffs “to a minimum,” you should probably all be coming up with something. Prince Alwaleed, who is less invested in Citi for the money than for the hilarity of it all, is expected to hand over a few unmarked twenties to keep things cool, though insiders say that with the mood he’s in RE: the Loverboy/Foreigner/Night Ranger tour being cancelled, nothing is certain. (If you listen carefully, you can here a Saudi accent in the background vocals for Sister Christian. Very crisp "t" pronunciation.)

On the bright side, Citi has given us a datapoint in the "write down per employee" value that reigns on the street 1,200,000 per employee, apparently). Now you can calculate J.P. Morgan and UBS layoffs as easy as a few HP-12C keypresses. That, my friends, is news you can use.

Citi Could Write Down Up to $24 Billion [CNBC]
China's Government Could Hamper Citigroup's Plans to Raise Capital [WSJ]

For now, however, I’m going to ignore what is obviously the result of Vikram Pandit paying a house call to the Mayo residence over the holiday and focus on the billions. Last week Goldman Sachs analyst William Tanona said $18.7 billion, the other day Sanford Bernstein’s Howard Mason wrote $12 billion. Meredith Whitney is rumored to be working on a report that pegs it at more like $35 billion, but who really knows. This is all just hearsay and speculation. And I’ll just leave it at that (if you have anything to add, by all means, go ahead). As an aside, I went with the 8830. I’m happy with it so far, mostly because it’s really brought my otherwise dormant asshole tendencies to light (for instance, the tongue lashing I gave a friend yesterday for interrupting me during a game of BB when I only had one life left and before I could pause the thing). I’ll elaborate more on that later.

Citigroup may write down $12 billion [Reuters]

CNBC reports that Citigroup will begin its layoffs next week, ultimately cutting 5 to 10 percent of its 320,000 employees (and then 5 to 10 percent of what remains, and then another 5 to 10 percent after that). This is sort of sad because when you look at that jolly, elfin face of Vikram Pandit's, you don't think "bad cop," you think "Christmas in Bombay" ("over-hyped, highly-mediocre hedge fund," etc.). In other news, it says here that I could take 17 five year olds in a fight, though I think my score was so high because I said that if it came to it, I wouldn't have a problem biting or eye-gouging, which is really only half true. I have issues with sticking things in my eyes- took like a week to master contacts, and drops, etc. flat out don't happen-, so I’m guessing I probably wouldn't be up to the task of sticking things in other people's. Biting, yes, no problem. I would bite the shit out of those 5 year olds. I’ve already bit three five year olds this morning. I'll elaborate more on that later.

Earlier: Layoffs Watch '08: Citigroup

Citigroup Layoffs Could Start Next Week [CNBC]

Specifically today, and apparently “almost everyone” in New York, which we’re told means more than forty. At this time I would like to offer our condolences to the recent unemployed, but move that we use this opportunity to recall that yesterday, I said we needed to get more creative with how people are getting fired. I came up with a few out of the box ideas (“A game of Assassin,” “turn off all the lights for five minutes and let everyone slap whoever they can at will/random. When the lights come on, the people with the reddest faces should be fired,” “something having to do with a lethal strain of syphilis (the rule is it can't be treated)”), then asked you to come up with your own. No one did and today, those poor kids at Citi were probably brought into some random conference room and told how valuable they are but at this time don’t fit into the bottom line blah blah blah while a chick from HR passed out tissues. Who do they have to thank for that run of the mill, nothing special send off? You. And now you have to live with that.

But! There are so many more layoffs to come, and not just at Citi. What I’m saying is, if you don’t want next week's or next month's lame-ass, “you're a valuable asset to the team but management is restructuring the amount of retards they have working for them*” firings on your conscience, get off your asses and do something.

Earlier: Layoffs Watch '08: Citigroup

If We're Going To Do This, Why Not Have Some Fun With It?

*actually, that’s quite good, though unlikely, except at Bear, where they have no regard for the mentally disabled.

Don Callahan, best bud with new Citigroup head honcho Vikram Pandit from their days at Morgan Stanley, has been appointed to replace the Citi's departing chief administrative officer.

According to Bloomberg, the Morgan Stanley boys are spreading all over Citi.

Callahan is one of at least three of Pandit's former associates from Morgan Stanley to take on management roles at Citigroup. Others include John Havens, who succeeded Pandit as head of the alternative investment business, and Guru Ramakrishnan, now CEO of Old Lane, which remains as a hedge fund managed within the alternative investments unit.

Citigroup's Pandit Taps Callahan for Administration [Bloomberg]

That's right, I said '08. The Land o' Vikram is said to be postponing its axings until the second week of January, just before bonuses are announced, though decisions regarding who will soon be signing up for Chuck Prince's "Fired By Citi? You Are Not Alone: A Daily E-mail" have apparently already been made (if he breaks 10,000 subscribers...nothing worth noting will happen). Managers supposedly handed over the names of people in their respective groups who are going down for the dirt nap last week, so if you're reading this and think you might be one of them, I guess it's too late to do anything about it and you might as well keep doing what you're doing, i.e. reading Dealbreaker and chillaxing in general (we've got some great FBN Happy Hour clips coming up this afternoon, if that's something that interests you, and if not, there's always backdating and proxy access to look forward to).

We hear that Citigroup is poised to name Don Callahan, another newcomer to Citi, as its chief operating administrative officer sometime this morning. The longtime Morgan Stanley marketing executive and a former IBM executive is said to be one of Vikram Pandit's closest advisers. Callahan joined Citi this fall, and has been operating chief of its investment bank and alternative investment group. Citigroup could not be reached for comment this morning.

The move everyone but Citi seems to have known was inevitable came to pass last night when Citi announced it would consolidate $49 billion of assets in its seven SIVs. The SIVs were facing a likely ratings downgrade, which would resulted in their immediate collapse. The debt of Citi's SIVs reportedly has ratings covenants that would have been triggered by a downgrade. A default would have required an immediate liquidation because the cost of raising new short term debt that is the lifeblood of the SIVs would have become astronomical, if it were even possible.

Although it is being described as a bold move by newly minted chief executive Vikrham Pandit, the Financial Times describes the move as "embarrassing" Citi, and indeed Citi investors have good reason to object ot the move. By keeping the SIVs off balance-sheet, Citi concealed what turns out to have been real risks from potential investors, many of whom were unaware such off balance-sheet gamesmanship was continuing after the accounting and regulatory reforms of the early years of this century. Citi had insisted it had no obligation to take on the SIVs and no intention of doing so but that seems to have been true only in a technical and legal sense. When it came down to allowing the SIVs to fail, Citi stepped up. Shouldn't they have known they would have done this all along? Are there any circumstances in which the SIVs would have been allowed to fail?

Perhaps Citi can explain the move as a response to "temporary market conditions." Citi maintains that the long-term debt held by the SIVs, 28% of which is mortgage related, is still sound despite the current conditions of the credit markets. It believes that a sale into the current market would result in steep losses, while a strategy of holding the assets until market conditions are better will keep losses, if any, to a minimum.

It's important to note that while Citi now provides the ultimate backstop to the failure of its SIVs, it is not responsible for all their losses. The first $2.5 billion of any lossses will be borne by the junior noteholders. (Thanks to Alea, who we found through Felix Salmon, for pointing this out). This, in part, is why those noteholders have insisted on ratings triggers for their debt.

So what does this mean for the Super Siv, MLEC? It is probably done for, an anachronism done in first by a market skeptical of the bailout plan and finally by the fact that this move by Citi to take the SIVs on-balance sheet obviates much of the need for an off-off-balance sheet rescue vehicle. It seems Citi finally found a rescue vehicle that would work, and it was Citi.

Last night Moody’s cut Citigroup’s long term debt rating from Aa1 to Aaa, citing concerns about its capital ratios. (The rating agency also cut Citigroup's issuer rating to Aa3 from Aa2 and lowered its overall financial strength rating to B from A.) Apparently, the bank still claims it will pay a 54 cent dividend on its shares. But be warned. There is already speculation that Pandit's next "bold move" will be to cut the dividend. Sure, the banks has said it wouldn't do that. But it also said it wasn't going to take the SIVs on-balance sheet.

Citi launches $49bn SIV rescue [Financial Times]
Fact Sheet from Citi [Citigroup]

CIBC analyst Meredith said today that Citigroup's conference call to announce Vikram Pandit as CEO went "poorly...as the details were scant and the tone was defensive." To Whitney's credit, she conceded that had the details flowed like Mike's HL and the tone been lighthearted, her report probably would have reamed out the bank for trying to "distract us with particulars and failing to focus on the bigger picture" and "using a tone so delusionally optimistic, given the circumstances, that we wouldn't be surprised if the Citi brass spent its afternoons locked in Win Bischoff's office snorting E and wondering aloud why everyone's always "ragging on the 'group."

In related news, Morgan Stanley said it agrees with Bob Rub about shorting Citigroup in 2008.

Citigroup Continues Fighting the Previous War [MarketBeat]
Citigroup: Morgan Stanley's Top Short Idea for 2008 [Seeking Alpha]

Here's the letter Bob Rubin sent out to Citigroup yesterday to announce the Vikram Pandit's promotion. It's vaguely convincing, until you realize that in invisible ink reads the message, "I'm telling you as a friend, short this thing like you'd short a sinking ship" (on hard copies of the note, of course, not electronic versions, I know how this stuff works). And also, that Rubes asked his buddy in IT if there was a way to "make it so the e-mail goes directly to spam? Or put it in some sort of an attachment that no one can open?"

You've really got to hand it to Citigroup. No one wanted to touch the the place with a fifty foot pole and when it finally finds a guy who will take the job, it acts as though *it* is too good for *him.* Like *it* had people lined up around the block. Like *it* could barely keep track of the number of people who didn't say they'd sooner die. Like *it* was *beating them off with a stick.* Way to break out the welcome wagon, guys! If you didn't want Pandit to be CEO, you shouldn't have given him the job. Nobody put a gun to your head and said "do it or I'll shoot*." But you did do it, and when you should've been getting behind your pick, you were figuring out ways to make "We'd just like to say that the dude we're about to name as CEO of our company sucks dick! But nevertheless, please welcome him" sound less severe. That'll inspire some confidence in your precipitously declining stock. I can't wait to see what Meredith Whitney's going to do to you. Oh, and congratulations, VP. God only knows why you want this job, but it's not like you could possibly make things any worse (though if any has any office pools going, we want in) so, nice one?

Citigroup Names Pandit CEO [WSJ]

*But if someone were going to do that, who would it be?

Tonight’s parties are Citi at Paramount Bar (6 pm), BNP Paribas at South Street Seaport (7 pm), Jay Goldman & Co. (7:30 pm) at Del Posto, and Choice Energy at Bruno Jamais (5:30 pm) but WAY MORE IMPORTANTLY: SAC Capital in a tent behind the Stamford headquarters. We really feel like we should go but Jesus fucking Christ, Stamford? Additionally we don’t want go make the trek by ourselves and our roommate can’t go, even though we impressed upon her that this party is more or less her Everest. (The weak excuse? Tonight she has a date and afterwards will be knee-deep in planning her "big birthday orgy. Entry fee is waived for anyone who can prove yearly net income over $500,000. Oh, and Anal_yst is invited. And that guy from Hamilton.”)

In other news, the Lehman review:

“fid got off to a slow start. equities got started fast, then got too drunk to keep going. admins danced until the music died. damn dj. and then it emptied out to the after parties. fid was starting up at around 8 but then died fast too. everyone's nervous about bonuses. equities thinks they're gonna subsidize fid. fid is resigned to their fate. oh and no live band this year.”

Earlier: The Secret To SAC's Success?

Deutsche Bank CEO Josef “Chuckles” Ackermann, seen here being a very naughty boy and trying to get German chancellor Angela Merkel to laugh during an important press conference (which he successfully accomplished right after this picture was taken, by putting a Pez dispenser on her thigh), has added himself to the growing list of people who would rather be shot in the forehead with a cattle gun than be chief executive of Citigroup. Ackermann told friends and family that his reasoning was twofold: 1. Not enough opportunities for “Hitler Humor” and 2. Piss-poor marketing materials out of Citi Private Bank compared to DBA.B.

To date, 382,744 people have turned down offers from the board, including, most notably James Cayne. JC apparently lost all interest in the job when he was told he would not be allowed to dismantle the smoke detector in his office.

Deutsche: Nein [NYP]

William Mills, chief executive of Citigroup’s markets and banking division in Europe said at a hearing of the Treasury Committee in the U.K. Parliament today that big C’s losses “greatly exceeded…profits in the [subprime] field over the last several years.” Mills, who is known to go where no one else will, added that the firm has suffered “reputational damage” above and beyond an incident last month involving Vikram Pandi showing up to an important meeting wearing a t-shirt proclaiming, “I fuck on the first date,” without irony.

Gerald Corrigan, managing director in the more or less irrelevant role of risk management at Goldman Sachs told the same audience that GS performed better than Citi this year. “On balance, we probably made money.” To his credit, he delivered this line completely monotoned and without an expectation of laughter or gasps from the crowd.

Citi Subprime Losses `Greatly Exceeded' Profits, Mills Says [Bloomberg]

Remember those western movies where nobody wants to be sheriff because the bandits always come into town and kill whoever happens to be the local lawman? It’s a genre common enough that it was parodied in “Blazing Saddles,” where a black man becomes sheriff because no-one else take the job. (And there was an episode of the original series of Battlestar Galactica that borrowed this plot device as well, although the bandits in this case were played by Cylons.)

That’s the feeling we get when we talk to people about Citigroup’s search for a new chief executive officer. With John Thain now officially in place at Merrill Lynch, the pressure is on for Citi to name a new chief but reportedly they haven’t made much progress. One sign that the search is going nowhere is that the names being bandied about are becoming truly fanciful. Some are even starting to talk call for Hank Paulson to take over the bank, according to a story in yesterday’s New York Post.

Our headline is more wishful thinking than an actual guess. But we're hoping our readers will provide some better informed speculation. Get your nominations in now and we'll run a poll later to decide this the democratic DealBreaker way.

WHICH senior Citigroup executive, who's still with the financial giant despite being involved in loss-making decisions this year, was able to promote his cute chief-of-staff and then replace her with an equally cute hire despite the bank's unofficial hiring freeze?

Just Asking [NYP]

We might give Citigroup a lot of shit for being the world's crappiest bank but that's just our way of showing affection. Because in truth, most days we really love Citi, today being no exception. Even though it has no CEO, no wiling candidates for CEO, no money, no women, no prospects, no action and no conceivable reasons at all for even getting up in the morning, Citigroup was reportedly downright offended to get a call from a prominent investment banker suggesting that perhaps it'd like to merge with Bank of America. Us? the world's crappiest bank, merge with Bank of America? Where the hell do you get off even thinking something like that? The board apparently called the approach (to say nothing of the actual proposition) "totally out of hand" and then looked around at its buddies as if to say, "You believe this guy?"

Financial Firms, Capital Depleted, Hunt for Cash [WSJ]

You will always be our number one.

Walid’s New Rival for Citi’s Affection [DealBook]

We all know CIBC analyst downgraded Citi to market underperform, predicted the bank would be forced to cut its dividend and sell its most valuable assets, and called for erstwhile chief executive Chuck Prince to be unceremoniously thrown out on his ass in an October report that earned Whitney her first death threats and had Mike Mayo muttering (through tears) to himself, "I wish I had balls like that," but apparently it wasn't the first time Mer chose to perform a bilateral orchiectomy with an audience watching. Whitney's husband, former football player and pro-wrestler John Layfield, AKA "Death Mask," recalls for BusinessWeek how he first fell for the girl, when they were guests on Fox's Bulls and Bears in August 2003, discussing the future of Citigroup. He was the bull, she was the bear:

"She asked me why you would want to own a financial stock during a time of rising interest rates, and she was right. She humiliated me on national TV...[we] were married in February, 2005."

What an awesome biatch! Carney thought to himself when he read the anecdote this morning in a little locked room. But we needed some assurance that these weren't two isolated incidents. Whitney's appearance (via phone) earlier today on Bloomberg TV provided that affirmation. How does she feel about Abu Dhabi's $7.5 billion, 4.9 percent investment in Citi? Not good! "$7.5 billion is not enough money by a longshot," Whitney told BTV. "Not enough, too late...[Citigroup] needs at least $30 billion dollars...[this injection] only partially mitigates the $11 billion charge in the 4th quarter. Citigroup needs to sell off better assets at a discount and cut their dividend [in order to deal with, among other things, the fact that C] has the single highest exposure to high LTV ratio mortgages, and the [imminent] default rates on those loans, which will be alarming."

No idea what she's talking about but loving that 'tude (JC's abbrev.).

Earlier: Some Analyst Love

The Analyst Who Rocked Citi [BusinessWeek]

Charlie Gasparino reports that Citigroup will be laying off somewhere in the hilarious range of 17,000 to 45,000 employees in the next couple months. It is unclear whether the severe to very severe measure is just for fun or an effort on C's part to do something about the fact that its stock price has become a punch line (several sources have told Gasparino that the "I just found out I've got AIDS" line in the old "horse with AIDS joke" has recently been replaced with "I just got shafted with 1,000 shares of Citi.").

In other news, some congratulations are in order-- Doubledown Media has named Chuck Prince the 94th "Best C.E.O." out of 100. How did he do it? Mr. Prince says that his Recipe for Success was "a third of a pinch of hard work, a sprinkling of good luck, and a dash of a dossier full of damning information (pictures, e-mails, the works) about each and every one of Citigroup's shareholders, which was unfortunately, very unfortunately, lost when [his] laptop crashed last month." Chuck's pearl of wisdom for next year's hopefuls? "You've got to back that shit up. They invented external hard drives for a reason."

Also on the list was Stan O'Neal, ranked at 54, and Jimmy Cayne, at number one.

Citigroup Plans Second Round Of Layoffs [CNBC]
The List Is Stellar, but a Little Dated [NYT]

Goldman Sachs analyst William Tanona is now saying that Citigroup will have to write off not 8, not 11 but $15 billion over the next two quarters on its collateralized debt obligations. Our question is, why stop at 15, which seems almost believable. You could probably go up to thirty, thirty five, before anybody would say, “Wait just a second.” It’s almost as though Bill didn’t get our memo on how he could better do his job. Anyway. Tanona’s note also included a downgrade of C to “sell” from “neutral,” and this pearl of wisdom: “The lack of leadership at this point in Citigroup's storied history could not have come at a worse time."

Unfortunately, at this juncture, it doesn't seem as though anyone's jumping for the job. As it happens, we've got someone in mind for the position, but don't want to name him just yet, as the bid will probably be taken more seriously in a couple months, when it's become clear beyond a shadow of a 50 billion dollar writedown that no one else will do it. The two hints we'll offer is that the candidate's going to be looking for work circa January 2010, and was the last vestige of class in that fleabag hotel known as 85 Broad. If you're able to hazard a guess, are you with me? Are you behind me? It could happen.

Citigroup Gets 'Sell' Rating, May Face $15 Billion Hit [CNBC]

Also: whoever takes over Merrill, and it'll probably be Blackrock founder Larry Fink, even though he's taking his sweet ass time deciding, is going to cut fixed income by 25 percent (mostly heavily out of the collateralized bond department). Investment banking and equities will remain intact, not taking into account the guys who will sober up long enough to quit for the greener pastures at E*Trade Financial. Sort of related: new guy? Has sort of an Elvis Costello thing going on? Says stuff like "give me the skinny, Charlie"? Do we have any (group) thoughts on him? I like his glasses, Carney thinks they're "just okay." You can go now.

Merrill's Next Top Man [CNBC]

*Let’s see if MER is as sensitive about the issue as BSC.

Chuck Prince’s body is still warm and Prince Alwaleed is already out there, trolling for a new best friend, the bitch. The Saudi Prince and single largest Citi shareholder, who just last week unceremoniously dumped Chuck for reasons not made public, has reportedly purchased a “VIP version” of Airbus’s A380 superjumbo, in an effort to “reel in [his] next catch.” (The ladies/bank heads do love themselves some aviation porn.) The aircraft features 5,930 square feet of useable floor space, and will supposedly be outfitted with a rotating dance floor meant to showcase Alwaleed’s recently cultivated ballroom dancing skills to one lucky passenger. Sources close to the matter tell DealBreaker that Chuck is beside himself with the news, considering that it was on an older Airbus that Alwaleed first woo’d the ex-CEO, and because it’s another cruel reminder of the fact that he’ll now be flying commercial. It’s rumored that interim Citigroup chief executive, Sir Win Bischoff, has already been offered an advanced invitation to board the jet with Alwaleed “whenever,” which just seems tacky.

Saudi Prince Alwaleed Buys a Private A380 [CNBC]

With the exception of all the office supplies he stole, Chuck Prince is leaving Citigroup with practically nothing ($27 million of stock, $1.3 million of options, $1.4 million of pre-existing benefits). At a time when he so desperately needs the shoulder of a friend to cry on, his best bud in the world has abandoned him. Not only that, but Prince Alwaleed bin Talal bin Abdul Aziz al Saud, the artist formerly known as Chuck’s best friend, PR flak and official apologist, has gone on the record to say he is extremely disappointed with the ex-CEO, and believes Prince let down the shareholders completely. Some friend! We mean, it’s true, obviously, but way harsh. Also, apparently the Chuck-man is effectively dead to Prince (or is just being sent a message to watch is back):

Q: Did you like Chuck Prince?

A: Yes, Chuck Prince was a good man.

This is almost too painful to watch. Do the days when Chuck could fuck up to his heart’s content and it not matter mean nothing to Prince? We just want to know where things went wrong, and refuse to believe the trillion dollar writedown is it. Alaweed’s comments point to something much, much darker. But what? Carney thinks it has something to do with a girl but he has no idea what he’s talking about.

Prince Alwaleed: Why Chuck had to go [Fortune]
Prince is the pauper [Breaking Views]
CHUCK LANDS $30M PRINCE-LY CITI PAYOFF [NYP]

This morning’s big story in the Wall Street Journal tells the story that has been rumored since news of Chuck Prince’s ouster from his spot on top of Citigroup broke. Basically, it was Mr. Weill, in Riyadh, with the corporate jet. We read the story, however, so you don’t have to.

• Things had become very strained between Sandy Weill and Prince. Sandy was upset about ballooning expenses and the sometimes forced exit of many of his chief lieutenants. He wanted to be consulted by Prince on how to repair the damage. Prince and his cohorts saw Weill as meddling.
• Despite no longer working at the bank, Weill still wielded power there through his influence with its largest shareholder, Prince Alwaleed. It only took one meeting between the two men to spell the end of Alwaleed’s support for Prince.
• Vikram Pandit—who has been at Citi less than a year—played a very important role in getting the bank to realize the extent of damage the credit market turmoil had done to its CDO portfolio. He led the team that came to chief finance officer Gary Crittenden with the bad news on Wednesday, October 24th. The following Saturday, he was part of the group that gathered at Citi’s Armonk retreat to come to terms with the losses.
• Later that day, Prince drove to New Jersey to visit his mother. That same day, Prince told his wife—Skadden partner Peggy Wolff—and others that he was planning on resigning.
• By Monday, Prince had handed the board his letter of resignation.

The most telling moment of the aftermath of all this comes not from the Journal but from Page Six. That’s where we learned that Prince was spotted on Wednesday at the Four Seasons Grill Room, where he had lunch with Ace Greenberg and Pete Peterson. Prince made his way around the room, giving props to all the seated big-wigs—Page Six name drops Leonard Lauder, Bruce Ratner, David Martinez, Bill Rudin, Richard Holbrooke, Strauss Zelnick, Walter Cronkite and James Wolfensohn—but he was obviously avoiding one man in the room—Sandy Weill. Page Six says that this led to “speculation of bad blood.” Really? You think?

Two Weeks That Shook The Titans of Wall Street [Wall Street Journal]
Hot Entrance [Page Six]

The Citi board of directors has powerful connections in the executive suites of corporate America and all across the upper echelons of Wall Street. But they seem to be having trouble locating a broad range of candidates to fill the spot vacated by Chuck Prince’s sudden departure. They are said to be actually reading articles in the financial press to search for possible candidates.

“Despite the long-standing agitation against the former CEO, the board was totally caught unprepared by the need to suddenly locate a replacement,” one executive search consultant familiar with the situation said.

“They are literally scanning the financial press for ideas,” another consultant told DealBreaker. As far as the consultant was aware, the directors were not seriously considering asking any long-dead genocidal dictators to run the bank.

Additional factors are complicating the search for a replacement chief executive. In the last decade and a half, Citi has become such a large and complicated corporate organization that there are few executives who have experience running a firm with so many different businesses and challenges.

“They’re probably wishing they still had Jamie Dimon around,” we said to ourselves as we typed those words.

Jamie Dimon had long been thought to be the heir apparent to Sandy Weill, until he was acrimoniously forced out by his long time mentor. The exact circumstances of Weill’s falling out with Dimon are still disputed and unclear. Dimon is now head of JPMorgan Chase, a Citi competitor whose stock has performed much better in recent years. It is unlikely he could be convinced to return to the bank that exiled him.

In addition, the close timing of the ouster of Prince with the forced retirement of Stan O’Neil, who ran Merrill Lynch until two weeks ago, makes finding candidates harder. The two companies are both considering many of the same candidates, Charlie Gasparino reported on CNBC today.

One candidate who has been discussed is Morgan Stanley John Mack. Gasparino reported this morning that Mack is now telling people that he is not interested in running either Merrill Lynch of Citi.

CEO Hunt [CNBC.com]

Wouldn’t it be nice if there were some sort of way to make money off all this time you’ve been spending debating who will be the next CEO of Citigroup? For those of you too scared to do it yourself, send us your pick and we'll place the bet for you. You're welcome.

Next Permanent Citigroup CEO [Paddy Power]

Update: Our legal department says we could get in trouble for this so just to be safe, don't put anything in electronic writing, and instead bring cash to Ulysses tonight and we'll take care of it there.

The arbiters of comedy at The Economist didn’t think our suggestion for who should run Citigroup—we said Hitler—was funny. ‘Cept we weren’t making a joke, so it’s not really clear why our nomination was being graded by the Collin Quinns of the UK. We were being dead serious, and gave three legitimate reasons why the corpse of a genocidal maniac might be just the thing to get “it” (a quarter without multi-billion dollar write-downs, profitability) done. Still, the lack of hilarity apparently wasn’t offensive enough to keep the CQs from scanning the comments section and quoting some of the recommendations (Maria Bartiromo, Greg Norman, Stan O’Neal) made by our dear readers for the job, but not others (Angelo Mozilo, Prince (the singer), GZA). The mag’s own pick for CEO is thirty year (1969-1999) Citigroup vet Shaukat Aziz, who is now the prime minister of Pakistan. Which, we admit, is much, much funnier. Because things over in Pakistan are going just swimmingly.

Earlier: Who Should Run Citigroup?

Finding another Prince [The Economist]

At the Reuters Finance Summit today, former Citigroup CFO and current Headwaters Capital boss Todd Thomson said his relationship with CNBC anchor Maria Bartiromo was entirely appropriate and described her as being “a terrific asset” to his business at Citi. He also said that she is “a rock star.” But you know CEOs and CFOs and former CFOs—they’re always saying something that’s code for something else. The metaphors and euphemisms and persuasive strategies make it all very difficult to determine what’s actually being said. (“This is not a rescue”—David Vinair, “We have a great organization, which, despite this event, remains a great organization”—Jeff Edwards, “I’m high on life”—James Cayne.) But maybe we’re just cynical assholes, prone to skepticism. So we’re going to do this the democratic way, and then we’ll decide:

Which, one could say, is kind of a travesty, considering he's a genius given to such stunning insight as: "any time you are writing off this many billions of dollars there are some issues in the company" and is also, contrary to previous photographs? Really pretty hot and could exponentially raise the median attractiveness of big bank CEOs being dragged down by James Cayne. Nice one, Maria.

Ex-CFO says Citi needs better bosses, not breakup [Reuters]

By now you know that Citigroup has appointed Rick Stuckey to lead a “dedicated team” to figure out “where we messed up in subprime” and “how we can fix it,” called the Sub-Prime Portfolio Group. The (one, only, single) problem is that that name sucks. Focus group results have found it to be “lame,” and Matt Tsesearksy, who’s been asked to help out in the risk management strategy of the Group, is said to have sat in the corner and sulked after being told that his suggestion—some variation on “the claw”—would not be incorporated. And if I was, and I’m not saying I am but if I were, on this team, I don’t think I’d necessarily be that inclined to do anything about these assets that’ve fucked so much up for Citiville. It’s not inspiring and I probably wouldn’t have a problem looking at it and saying, “You know what, I’m not really in the mood.” No fear of retribution there because it demands no respect. But I also don’t have any alternatives. I think you might. Let’s hear them. Citigroup has said the best one will be considered, so don’t half-ass it.

Citi’s New Subprime Manager: The Internal Memo [DealBook]

Yesterday we made the case that the “too big to fail” argument being made in favor of a government bailout of Citi—should it come to that—ran contrary to the idea behind the deregulation of the banking industry over the last dozen years. Basically, the argument for deregulation was that market processes would better determine the size and scope of banking and investment houses and financial innovation better than political and regulatory fiats. A bailout would undermine those market processes by privatizing the rewards of untrammeled growth while politicizing the risks. Offering a government insurance policy against the failure of our super-sized financial institutions is no better than the regulatory scheme that proceeded it. Indeed, it may be worse.

We were a bit jarred to see a similar argument being made in the pages of The Nation, not normally a periodical known for its enthusiasm for market processes. While The Nation drew the opposite conclusion we do—favoring a return to regulation over resistance to bailout—it at least understood half the equation: that deregulation of the upside and government insurance against the downside is a scam.

Fortunately, this wisdom is not confined to the pages of The Nation. (Or, rather, its website; we haven’t actually seen a copy of the dead tree version of The Nation since our college years.) This morning’s Wall Street Journal’s editorial page runs a piece making precisely the right argument.

The phrase "too big to fail" is already being bandied about regarding Citigroup, and we can expect to hear more of it in the weeks to come.

But failure can take many forms. Citigroup is not about to disappear from the face of the earth, taking its assets and liabilities and leaving counterparties empty-handed. An orderly process that imposes market discipline and involves genuine price discovery would be far preferable to one in which a bank that has stumbled this badly is propped up by government regulators.

Deregulation allowed banks to take on bigger risks, along with meeting higher capital standards. Putting those risks on taxpayers' backs would combine the worst features of a highly regulated system with the private profits that in good times came from expansion and consolidation. If it comes to putting new capital into Citigroup, the bank's current equity holders need to bear most of the pain.

[Editor's note: Brian M. Carney, the brother of Dealbreaker's John Carney, serves on the editorial board of the Wall Street Journal.]

Ex-Prince of the Citi [Wall Street Journal]

It’s always sad when couples end things (and you have to pretend to care), but once the appropriate amount of time has past (usually two hours), we must ask the question: who came out on top? Who’s the winner of this breakup? Who deserves my admiration and who deserves my disgust?

If the rumors are true that they were ever even a pair, it’s been over ten months since Maria Bartiromo and Todd Thomson called it quits. Today the Times, under the guise of just being topical and not being US Weekly, casts its vote for Maria, declaring that the CNBC reporter is “is having a great year.” Not just good, GREAT. (Actually, they were going to go with “fanfuckingtastic” but, you know, propriety or some shit like that.) We’re not saying we don’t agree that the $H’s having a banner 365 days, but the story came off as completely one-sided, because these things are all relative, and the only way you’re having a good time is if your ex is having a bad one. We thought the Times knew this, and yet, the story made no mention of what Big T’s been up to. So we will, and only after we’ve seen both sides will we draw a conclusion.

Job Status

Got one, though it hangs in the balance, thanks to competition from “Street Sweetie” Erin Burnett and good times girl Trish Regan

Unemployed

SO FORGET THAT, SHAREHOLDERS, EMPLOYEES, CITIGROUPIES AT LARGE, because we know you've all been dying for it to happen. Well, it's not so MOVE ON. (Incidentally, we're not suggesting that Sanford and Alan Greenspan get together and form a support group for people who think the organizations they used to work at are sitting around waiting for their heroes to walk back through the door (standing up only to light candles at respective shrines each week for regularly scheduled Friday night vigils) and take over what couldn't possibly function without them, but if they wanted to, there wouldn't be any objections from us.)

Citigroup In 'CEO Limbo' As Stock Skids Further [CNBC]

Deal Journal says Joe Torre, in an attempt to illustrate the fact that there’s no natural candidate for the job of running a company that “has proven itself so complex as to be ungovernable." Okay, but Torre actually already has a new gig with the Dodgers, so he’s unavailable. But we like the idea of coming up with someone for Citi CEO who’s so completely inappropriate for the position, whose nomination is so totally insane that it might actually work. The only one we’ve got so far is Hitler, which right off the bat would be fun because the C board is really into grave digging. Additionally, that place could benefit from a little Weekend at Bernie’s humor. Finally, it’s common knowledge that when you have (the corpse of) a genocidal maniac in charge, other banks know not to fuck with you. Surely you can do better (though I think ours should at least be considered). The best submission will get the job.

Why Not Joe Torre for the Citigroup Job? [Deal Journal]

Citigroup board members are said to have plans to gather for an “emergency” meeting this weekend. Up until recently, not one member knew what a joke their bank had become, and if the chairman of the board hadn’t accidentally been forwarded a widely circulated email insulting Citi that originated from an analyst at Deutsche Bank, they would’ve been none the wiser. Though no one can say for certain what will be discussed, there are obviously many, many things to choose from, including but certainly not limited to: C losing almost a quarter of its market value since it was announced third quarter earnings had dropped 57%, further writedowns, getting to the bottom of Prince Alaweed's indefatigable obsession with their CEO, and, of course, the beheading of Chuck Prince.

Citi to Hold Emergency Board Meeting [WSJ]

(Just kidding about that whole bribing o’ analysts thing but with everyone—including Can’t Do Anything Right Citigroup—“beating” analysts’ “expectations,” doesn’t seem so crazy, does it? You’d be surprised how far a free dinner at the Hawaiian Tropic Zone will get you with an analyst at UBS AG. Lloyd Blankfein knows what we’re talking about.) Anyway, JP Morgan’s third-quarter net income rose 2.3 percent to $3.4 billion (97 cents/share), up from last year’s $3.3 billion (92 cents/share). Analysts had previously forecast earnings at 90 cents a share. This was exciting, because it made the $1.64 billion in write-downs on leveraged loans and collateralized debt obligations (which caused investment banking profits to fall 70 percent to $296 million) not seem as bad. With the exception of Goldman, JP Morgan handily won the Q3 pissing contest, with Merrill Lynch expecting to lose tons of money in the quarter on account of $5.5 billion in write-downs, and Citigroup’s triumph over analysts’ expectations earlier this week, which saw the behemoth posting a 57 percent decline on fixed-income losses. Though, to curb JPM’s enthusiasm only slightly, one might note that Citigroup has been on the receiving end of a golden shower, and pretty much drowning in it, for some time now. Still, unworthy an adversary as the C might be, it’s nice to see Jamie Dimon wiping the floor with the firm that pushed him out the door instead of naming him CEO, as Deal Journal notes this morning. Also, Meg McMullen, chief of New England Research & Management called Jamie Dimon “a smart cookie,” and, to be honest for a sec? We kind of dig the soccer mom-ness of it all. Like she's the antidote to our golden shower or something.

JPMorgan Third-Quarter Profit Rises, Beats Estimates [Bloomberg]
Dimon to Chuck Prince: Watch and Learn [Deal Journal]
JPMorgan Profit Rises, Despite Writedowns [CNBC]

Would you rather have a CEO who’s become a joke only recently (let’s say June) or one who’s been a joke since day one? A CEO who’s going to kick it any day now or one who’s probably got a few good years left? A CEO who comes into the office or one who works from the green? A CEO with his own ballpark (in association with a certain 88-win team) or one with none? A CEO who’s built something or a CEO who’s danced? A CEO who holds a gun to his board’s collective head to encourage them to nod in agreement when he says stuff like “everything’s going as planned” on conference calls or a CEO who walks out of conference calls two minutes after they’ve begun? A CEO who commissioned an employee to blog about his failures or a CEO who just yesterday stopped a suspicious looking secretary in the hallway and said “If you tell anyone about this, I’ll fucking kill you”? A CEO with white hair or a CEO with black hair with streaks of white? A CEO who’s cut out meat from Bobby Van’s for both “health reasons” and out of respect for animals or a CEO kills a calf every morning “to start the day on a high note”? A CEO who’s fired one or two people so as to cover his own ass or a CEO who’s gotten rid of at least 1,000 (think mysteriously disappearing first-years who were asking too many questions about maintaining positive operating leverage)? In other words:

Here’s are a bunch of things that Chuck Prince has done since he became CEO of Citigroup that could be characterized as “dumb” (many courtesy of Duff McDonald who, unlike Prince Alwaleed, is keeping count. It is by no means comprehensive). :

- He’s said some stuff that makes him sound like he has no idea what he’s talking about. (“In July, Prince injudiciously announced that Citi would continue “dancing” to the music of the buyout boom until it stopped. Less than a month later, the roof was falling in on the dance hall.”)

- He’s exhibited little-to-no follow-through (In 2005, Prince sent out a lot of emails about how the bank should “maintain positive operating leverage” but didn’t actually get around to doing it ‘til 2007).

- He got rid of the guy keeping Maria Bartiromo’s ass in his direct line of vision.

- He more or less encouraged a lot of talent, including former co-chief Bob Willumstad and Marge Magner, head of the company’s consumer-banking unit, to give JP Morgan a chance.

- Old Lane

- He fired trading chief Thomas Maheras, who people seemed to have actually liked (how else can you explain the visible tears and “You suck, Prince! Bring Tom back” chants on Friday?)

- $6.5 billion of pre-tax losses and writedowns.

You’d think such faux-pas would be cause for Prince’s termination, but it’s the two things he’s done since taking over for Weill that could and should be characterized as “genius” that are keeping him in the employed state he’s become accustomed to:

- Lowering the bar: Prince has so far lowered everyone’s expectations of Citigroup that analysts are constantly given the opportunity to say, “You know what? They actually didn’t fuck shit up quite as badly as we were expecting. You really surprised us, Citi. Pizza for everyone.” On today's "earnings" announcement: ``Their revenues actually weren't as bad as we were expecting,'' Jeffrey Harte, an analyst at Sandler O’Neill & Partners LP said. ``The trading and some of the banking businesses held up better than we thought." Prior to announcing next quarter’s earnings, Chuckie will start a whisper campaign that the ‘group has gone bankrupt and been forced into downsizing measures ranging from “no paper clips” to “TP that makes sandpaper look good.”

And Prince has so brilliantly managed people’s expectations at what he himself is capable of that he’s no longer held to actually carrying out things that would be “good” (don’t even say “profitable,” nobody’s ready to hear that) for the bank (which presumes he ever was, as one conspiracy theory about the Prince-driven train wreck is that it was Sandy Weill’s elaborate plan to create a bank that would inevitably fail upon his departure, just so he could feel “needed”). On today’s announcement of third-quarter earnings falling 57 percent? “Prince is doing the right things strategically. It's become more of an execution problem lately.''

- A harem of fanboys: first, there’s Bob Rubin, who’s paid $17 million a year to play (what sounds like a pretty kinky) game of “corporate and diplomatic glad-handing…of the highest order” and occasionally offer suggestions, which are either bad ones that Chuck is following blindly, or good ones that Prince sees no room for in Citi’s “strategic vision” of failure. They have each other’s backs, because they both know what it’s like to be paid millions to do jack shit. Then there’s the board in general, which just this morning was said to be “comfortable” with the recent managerial changes at the company and feels that its “strategic plan is working.” Of course, it was Prince who was speaking on the board’s behalf, but it’s entirely possible that its members have deluded themselves into thinking such ridiculous things (if there’s one thing we know at DealBreaker it’s that Stockholm syndrome is very, very real). Finally, it’s virtually impossible to forget Prince’s #1 advocate, and Citi’s largest shareholder, Prince Alwaleed, whose seemingly limitless support for the CEO has undoubtedly seen this conversation to pass: “Did you burn the place down today?” “Nope.” “Great work! If I could promote you above chief executive, I would. Here’s a virgin for your troubles.”

Basically, someone should give this guy the MacArthur award. But how much longer can the charade last? Some people are saying Rubin’s (and therefore, maybe, Chuck’s) days are numbered, and James Cramer’s “sources” tell him that Prince will be fired by the end of the week. So purely basing our answer on what we know about the voices inside Uncle Jim’s head, we’re going to go with--and this is just sort of a reflex thing--never.

Game Plan: Earnings Bonanza! [CNBC]
The Hanger-on [NYM]
Citigroup turmoil turns spotlight on Rubin [Reuters]
Citigroup Net Falls 57 Percent on Fixed-Income Losses [Bloomberg]

The market for LBO loans has opened up since the catastrophe of August. By offering the loans to investors at a discount, and eating the loss, the banks that committed to make them have begun to clear them off their books But, as the Wall Street Journal's Henny Sender reports today, the amount of loans that have been sold—about $30 billion—are “a drop in the bucket” compared to the total of $310 billion of LBO loans still waiting to be placed. And that’s just from North American deals. Nearly a third of that is set to come into the market in the next thirty days, according to the Journal.

This data may shed new light on the reported plan of KKR to buy LBO loans from Citi, including LBO loans that went to finance KKR deals, and Citi’s reported plan to lend money to KKR to buy those loans. After speaking to several loan syndication professionals, we have come up with what looks like the logic of this deal.

The banks are worried that while there has been some investor appetite for LBO loans, there may not be enough to absorb the total amount they plan to bring to market. A flood of new loans selling into lowered demand could put pressure on the banks to make even steeper discounts, creating even larger losses at a time when the banks are attempting to put the legacy of credit market losses behind them. The alternative—keeping the loans on the books and hoping for better days ahead—is no better for banks trying to show shareholders that they cleaned the debt mess off their books.

Enter KKR. Without public shareholders and armed with lock-up agreements from investors, it can take a longer view of the debt market. Although a lot of debt is currently scheduled to come to market in the coming weeks and months, there may be a drought of those loans just over the horizon. The slowdown of leveraged-buyout deals this summer means that there will, eventually, be fewer loans coming to market. And this drought could hit just when investor appetite for debt is recovering. At that point, KKR would be in a great position to sell the loans at prices above the discounted price at which they bought them from Citi.

At the same time, Citi might be comfortable sitting on newer loans which it can claim it is syndicating on schedule rather than older loans. This is a sleight of hand but one that shows at least a certain kind of agility that Citi may hope will please investors. Citi too could hope to take advantage of a renewed appetite for debt and the coming LBO loan drought, and sell those loans at par, reducing losses that it might have incurred selling into a flooded market now.

We’ve said it before, but we’ll say it again: different time horizons create different profit opportunities. The logic of “if they’re buying, why are you selling” assumes a homogenous market of buyers and sellers, when in fact the market is characterized by heterogeneity. And private equity firms—at least those that don’t feel answerable for stock prices to public shareholders—are often in a position to take advantage of opportunities only available to those with longer time horizons.

Damn it must feel good to be a Kravister.

Debt on Sale: Banks Grease The Leveraged-Loan Machine [Wall Street Journal]

Let’s see if we have this straight. Citigroup wants to sell off some on the leverage loans it committed to before the credit crunch. Many of those loans were made to private equity owned companies for leverage buyouts, including companies that KKR bought. A fund managed by KKR is looking to buy the leveraged loans, which it believes are under-priced in the wake of the credit market turmoil. But everyone knows KKR doesn’t buy anything with cash: it borrows the money. So now, according to the Financial Times, Citigroup might lend money to KKR to buy Citigroup’s loans.

This is very possibly the best story ever. The only way it could get better is if KKR went on to buy the loans used to buy loans from Citigroup. And, of course, Citigroup lent it the money for that. And then, well, you get the point. In the end of our fantasy, Citigroup’s stock get’s hammered by investors skeptical of this snake-eating-its-tail lending scheme. And get bought out by KKR. With loans from....

Insiders report that credit market expert Charles Ponzi has been retained as an adviser to both Citigroup and KKR for the transaction.

Citigroup talks to KKR about leveraged debt [Financial Times]

Here’s a tip for those of you concerned about a fast-approaching expiration date on your job—see if you can put in an application for either CEO of Citigroup or manager of the Mets, two positions in which you can apparently fuck things up beyond anyone’s wildest dreams and still not get fired. Prince Alwaleed bin Talal, C’s largest individual shareholder, said that he totally backs the management of Citi (i.e. Chuck Prince), and that the bank’s 60 percent slump in third-quarter profit, perhaps due in part to a $1.4 billion writedown, was a “mere hiccup,” not unlike the Exxon Valdez oil spill—basically just a blip.

In fact, the only thing that’s been keeping the Saudi prince up at night is the question of across which medium “World’s Greatest CEO” should be printed—a mug or a t-shirt? Mugs are always a safe bet because there’s no question about size (Chuck isn’t really that big though his shoulders are pretty broad), but T’s are just so much more festive! Anyway, details. Alwaleed predicts that the Citi Prince will “normalize” performance in the fourth quarter.

Meanwhile, Mets GM Omar Minaya told reporters yesterday that he “believes” in manager Willie Randolph. Rather than focus on the fact that he blew a seven-game lead with 17 games left in the season with unparalleled rapidity, we should dwell on all the good stuff Randolph’s done in the past three years. There’ll be a sit-down with the Wilpons, sure, but that’s just to smooth (kind of unjustifiably) ruffled feathers and make sure that Willie sticks around for the rest of his two-year, $4.25 million contract. Minaya predicts that Randolph will lead the Mets to victory in next year’s World Series.

If only there were a safe place where these two seemingly unrelated organizations could get together and speak freely of their common love and commitment to keeping horribly inept management in power (and doling out handsome rewards for such impressive failings and pratfalls). Oh, right—Citi Field, the (soon-to-be, in 2009) new home of the New York Mets (thank you for the salt, David Weidner). But don’t write off The Palace of Personal Responsibility, the naming rights for which Citi is coughing up roughly the equivalent of three years’ salary for a certain 88-win team, as simply a place where losers can celebrate their manifold losses just yet. Let’s remember that it’s also the site of Shake Shack II. And we can all agree that it’s easy to let bygones be wretched, disastrous bygones over a double Shack burger.

Citigroup Third-Quarter Profit Slump a `Hiccup,' Alwaleed Says [Bloomberg]
Mets GM Minaya won't fire Randolph [Newsday]
Citigroup and the Mets collapse [MarketWatch]

Sounds like at least one job at Citi is still safe. Somehow.

He’s got all the re-mastered DVDs. He hosts ‘TOC’ marathons with Chuck Prince and Sandy Weill, drawing straws to determine who has to prepare the Chex Party Mix. He’s written op-ed pieces about Felix Unger’s sexual ambiguity. Two summers ago, he laid out $15,000 at a silent auction for a lock of Jack Klugman’s hair. And now Vikram Pandit, who joined C after the bank bought his Old Lane hedge fund last year, will sleep where Tony Randall slept.

The Citi Alternative Investments head has paid $17.9 million for the late Randall’s CPW co-op, topping Widow Heather’s original asking price of $17.85 million. The ten-room residence occupies an entire floor of the Beresford apartment building and, according to the Corcoran Group, “enjoys superb light and impressive park views through 20 windows spanning two exposures.”

For his part, Pandit, according to people familiar with the matter, has apparently said that he would’ve paid that much “or more” for a “1-bedroom shithole” on the corner of “fifth floor walk-up” and “this is the only neighborhood in Manhattan that hasn’t yet been gentrified,” if its presence had once been graced by Tony. (VP already owns Randall’s boyhood home in Tulsa, Oklahoma.) Pandit could reportedly “not give a baker’s f**k” about new neighbors Jerry Seinfeld and John McEnroe.

Upon joining Citi last year, Pandit was greeted by an approximately 40% drop in CAI profit. Old Lane fell 5.9% in August.

What Bubble? [New York Post]

Women have been consistently breaking down barriers. First it was suffrage, then it was admission into McSorely’s Ale House. What’s the final frontier? As Citibank’s latest marketing campaign would have us believe - Investing. On the whole, relative to men, women tend to behave more conservatively when it comes to investing.

Citigroup’s latest ad campaign is a joint venture with Women & Co. (a Citi Company) is targeting this largely untapped demographic. A portion of Women & Co.’s mission below:

Women & Co. was created to address the unique needs of women as they seek more command over their personal finances. Our mission is to provide you with access to the education, resources, tools, and benefits to become an active participant in planning your financial future. We’ll be there to support, encourage, and empower you on your road to financial fitness.

Their September ad blitz featured in the glossy pages of Vogue, O, Gourmet, Real Simple and Cookie as well as The New York times is directed toward the affluent female population of North America specifically between the ages 25 and 40. In an article by Moe of Jezebel.com it is argued that this slew of ads is mildly offensive and derogatory towards the more “fair sex.”

Let’s take a minute to analyze who Citi’s enterprise is really aimed at. Let’s start with who it isn’t aimed at: you, me and lots of the people who are reading DealBreaker or Jezebel. About forty-percent of DealBreaker’s readers are New York City dwellers and New Yorkers tend to be more savvy when it comes to the markets and investing (ladies, I think you can all say you’ve had at least one investment banker boyfriend?). So girls like Moe and I are likely more adroit than those who this campaign is actually targeted at.

So who is Citi’s target recipient for this ad? It’s 28 year old Shelly Lopez in Fort Worth, Texas working at the local Frost Bank branch with 5k in her savings account generating ~3.25% interest.

What this campaign is saying to Shelly – Take your money out of the bank and put it in dividends or blue chips where you could earn a higher rate of return! It’s hard to see how encouraging women to actually get out there and invest is offensive to women. This makes a whole lot more sense than spending those hard earned dollars on $275 shoes and $20 vodka tonics at the Gansevoort hotel (That’s where those investment banker boyfriends come in handy).

As for the argument that dividends and blue chips are for “grandparents” and “people with heart conditions,” it’s doubtful that this target demographic knows enough about “the markets” to desire more greater to EM’s and high-margin growth stocks. It hardly seems fair to take Citi to task for understanding what women want and pitching their ads at those desires rather than some egalitarian view about what women should want.

What Citi is doing, is using both a persuasive foot-in-door strategy by planting the seed and imploring women to start small with their investments. It’s simply encouraging women to educate themselves so that they may some day invest in more volatile markets and increase their value at risk. Until then, I think Citi does a service both to Wall Street, women on the whole, and of course (and I think this is where Moe and I can find common ground) to themselves.

Citi could not be reached for comment.

--by Myrna Moss

More on Women & Co. [Citibank]
Citigroup To Lady Investors: Take It From Us, Markets Are Tough! [Jezebel]

The banks have won the first big show down with private equity.

Last night several news outlets, including the Wall Street Journal, reported that private equity giant Kohlberg Kravis Roberts has signaled a willingness to include a financial covenant for the bank loan portion of the $24 billion of debt needed to finance its purchase of First Data.

First Data was largely viewed as a test case for some of the biggest, and riskiest, of the highly leveraged buyout deals that are scheduled to close in the next few weeks and months. The banks had been asking the private equity sponsors of the deals for concessions on the terms of the financing, saying it was having trouble syndicating the debt due to recent concerns about debt levels by many investors.

Citigroup is shutting down its Tribeca hedge fund. It’s not a blow-up. It’s not getting redeemed up it’s assets. Its just duplicative of the strategy of Old Lane, which it bought for $800 million a few months ago.

Or so they say. (Actually, or so Bloomberg says they say. We haven’t seen the internal Citi memo yet. If you got, send it our way. Tips@dealbreaker.com. We’ll keep the identity of our source confidential, of course.) The fund was underperforming the market. And Bloomberg’s report leads with the fact that it is returning money to clients rather than pressuring them to roll into the new fund. It sounds like some investors must have been pretty unhappy.

About fifty people will lose their jobs.

Citigroup to Shut Tribeca Hedge Fund, Expand Pandit's Old Lane [Bloomberg]

Deal Journal: How would you assess Goldman Sachs?

Wilhelm: Goldman has probably lost some of its cachet in terms of advisory services. It’s lost people over time to hedge funds. Effectively, what Goldman has been doing is working with people who have left the firm to provide services to them. Look at the profitability of its prime brokerage. That’s all service to hedge funds. You could look at it as Goldman outsourcing the human capital of trading. It’s really providing distribution and execution services for these guys.

Deal Journal: But come on, Goldman is still Goldman, right?

Wilheim: It looks more like a Citibank.

We know morale is down and everyone is FREAKED OUT about the prospect of their bonuses being reduced by 5% and more than a few of you are considering cutting your losses and ending it now, but name calling like this is really unbecoming of grown men (as are the tears, in public places).

Traders vs. Bankers: Breaking Up Wall Street Banks [Deal Journal]

Although the recent job cuts in two Bear Stearns mortgage units have sliced through obscure places called Irvine and Scottsdale, rumors have started to circulate on Wall Street that the axe may soon fall closer to home. Some, including Jim Cramer, have predicted that there will be serious bloodletting in areas tied to credit markets and hedge funds.

“I think that many of these firms have as many as 30 percent more people than they need right now in these departments, and all of them will be cashiered by the end of the year. The lists are being drawn up; the HR people notified,” Cramer wrote recently in New York magazine.

Many on Wall Street scoff at the idea that they have anything to worry about but recent history of market downturns suggest otherwise. When the markets suffered in the years following the bursting of the tech bubble, investment banks and brokerages laid off as much as 25% of their work force. In just one day in the winter of 2003—it was February 7th, to be precise—Goldman Sachs announced that it would cut roughly 20% of its 220 options traders.

Last time around the cuts began with the brokers, since it was a downturn in the equities market that began the bloodletting. This time it may start with those parts of the investment banks directly tied to mortgages, leveraged buyouts and hedge funds and spread from there. As the mortgage market contracts, structured finance could also get hit, with both product and sales people losing jobs as the pool of underlying assets dries up. Derivatives traders may also find the axe swinging in their direction.

But enough of this vague speculation. It’s time for specific speculation. Where are the job cuts coming next? A recent item on DealBook doesn’t exactly name Lehman brothers as the most likely candidate. Except that it sort of does. “Bear Stearns is the nation’s 12th-largest home lender, according to Inside Mortgage Finance. The company, the fifth- biggest U.S. securities firm, ranks second after New York-based Lehman Brothers Holdings Inc. among U.S. sellers of mortgage bonds,” DealBook explains.

There’s also been talk of more cuts coming from Citigroup. Despite claims that they are still dancing in the LBO market, the music seems to have stopped. And a few seats are probably going to get pulled away, leaving some left standing. Like musical chairs but with your job.

Anyone care to irresponsibly speculate about who else might pick up the job cutting axe?

As Bear Cuts Jobs, Some Wonder Who’s Next [DealBook]
Bloody and Bloodier [New York Magazine]

Analyst at Sanford C. Bernstein & Co. predicted today that Citigroup may lose between $1.2 billion and $1.5 billion on loans to buyout firms and somewhere in the range of $500 million and $1 billion on subprime mortgages in the third quarter. Could things turn out better—2 billion? Worse—20? Analysts Howard Mason and Michael Howard said in a note to clients, “The key question is how the market absorbs deals coming in September, when spreads may widen out to July levels or worse, or may renormalize, with spreads coming in to June levels.” We hear Howard Mason also added, “In the event of a civil union, please do not call me ‘Howard Howard’.”

Shares of Citi are down 16 percent this year, making the company a $231.5 billion value, yours free with the purchase of one disassembled umbrella that Sandy Weill’s wife vetoed as instillation art for the living room and that even a bunch of New School punks, fully versed in the reputation of Shitay Citay, turned down. (Weill’s pitch that “it’s an ironic shitay” did not pan out well).

A 79% rise in second quarter profits at UBS were overshadowed by predictions of a drop for the second half of 2007 (and a history of managing the private wealth of Adolf and his groupies). The company warned that if choppy market conditions continue, its investment bank will “see a very weak trading result.” Shares of UBS are currently at their lowest level in 2007, and the Swiss also reported additional losses at Dillon Read, its boarded-up hedge fund. Some face was saved when Marcel Rohner noted, “I’d like to point out that compared to Bear Stearns, you’re pretty much looking at Hedge Fund of the Year, right here.”

Citi May Lose $3 Billion in Debt Rout, Bernstein Says [Bloomberg]
UBS blames poor outlook on market volatility [FT]

Citi (NYSE: C), as one of the only large banks that survived the last couple of weeks with a P/E over 10x (only exceptions we could find were Lazard, which doesn't really count as a true comparable, and UBS), was being valued by the market as large and clunky enough not to be significantly jolted by subprime issues. It's a good thing, because Citi is one of the biggest subprime losers according to the Financial Times.

Citi wants you to know that the $700 million in credit related loses the bank incurred in the last several weeks would have been much more damaging to any bank less poised to remain inert and flatulate in the general direction of market forces.

The bulk of the losses were sustained by the structured credit group led by Michael Raynes, brought in from Deutsche last year specifically to lose almost a billion dollars.

Last month, Chuck Prince told FT that, “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” Citi may finally be ready to rest its feet after embarrassing itself almost as much as Elaine at the office party.

Citigroup faces the $700m music [FT via Deal Journal (subscription required)]

Is the debt window closed to leveraged buyouts at Citigroup? This morning we spoke with a source at a private equity firm who told us that Citigroup has become entirely unresponsive to inquiries from private equity firms seeking leverage for buyouts.

"Chuck Prince says they're still at the dance. If that's true, they're playing the wallflower part," the private equity executive told DealBreaker.

As recently as last Friday, Citigroup chief Charles Prince was being quote in the press with claims that Citigroup wasn't pulling out of the market for buyout loans. But as credit worries have spread from subprime to the broader markets for corporate borrowing, some say that Citigroup has stopped dancing.

Citigroup has one of the biggest loan books on Wall Street, and may be feeling the pain from a credit crunch more than others. As investors have recently shunned LBO debt offerings, banks have been forced to sell loans below par or carry more of the loans on their own books. According to our source, Citigroup seems to have decided to carry the loans, and as a result new lending for buyouts from the bank have slowed to a halt.

Citigroup could not be reached for comment. They are probably all still swimming to work.

Citi is no longer the world's largest bank in terms of market cap. When Asian markets closed yesterday the Industrial & Commercial Bank of China (ICBC) was $3 billion ahead of Citi's market cap of $251 billion.

The main reason for Citi's dethronement is ICBC's 15% share price surge this month, compared with Citi's relatively flat stock. Investor exuberance has propped the Chinese bank up despite that fact that state controlled ICBC generates less than a third of the income Citi does. Last year, ICBC posted net income of $24 billion last year compared to Citi's $90 billion. Investors value ICBC's stock at 28 times projected earnings per share, opposed to Citi's below market 11x P/E ratio. The global average for major banks is 16x P/E.

Will Citi regain its crown?

The Yeas (BusinessWeek) contend that Citi's M&A business is right up there these days with Goldman, Morgan Stanley and JPMorgan. Citi now commands 27% of global M&A business, in line with the white shoes on the Street.

The Nays (everyone else) maintain that the solidification in its M&A unit doesn't disguise the fact that Citi is a relatively bloated, poorly run (according to Jim Cramer) behemoth of an institution that dropped the ball on hedge funds, private equity and prop trading, three of the fastest growing sources of bank revenue. When it comes to enterprise market share, as calculated by the Competing for Customers and Capital blog, Citi has lost the vast majority of market share that other banks have gained in recent months.

Next stop, HSBC, in 3rd place with a $215 billion market cap.

ICBC tops Citigroup as largest bank [ReportonBusiness.com]
Citigroup Enterprise Marketing Expenses: The Middle Line [Competing for Customers and Capital]
How Citi Fixed Its M&A Business [BusinessWeek]

The soon-to-be opened 15 Central Park West—what, you haven’t heard of it, hobo? Basically: the Kosher 740 Park—just added Sandy Weill and Daniel Och (-Ziff) to its list of inhabitants. Other Shul-enthusiasts on the condominium complex’s roster include Lloyd Blankfein and Daniel Seth Loeb, who bought a penthouse in the building for $45 million in 2005.

Interested in the property? Too bad—all the units have sold. However, developers Arthur and William Zeckendorf predict that there may be up to ten flipped apartments up for grabs when the building opens in the fall. So if you think you can stand living alongside the nouveau-riche, and are willing to risk having one of Loeb’s pet gerbils burrow a hole into your apartment, here’s the low-down:

-The building is coated in 2,832 panels of limestone from the same Empire Quarry in Indiana that makes up the skin of the Empire State Building.

-Working fireplaces (fireplace fetishizer Weill would sooner live in a studio on Rivington than a penthouse without an accessible means of burning things, you know this)

-Screening room

-Game room

-60-seat lobby dinging room (with private chef)

-Health club

-A waiting room for chauffeurs

-29 maid’s suites on low floors so you Louisa can work around the clock but not contaminate your personal space

-30 wine rooms surrounding “an octagonal tasting area”

-31 autofellatio rooms, all finished in English oak, with a lovely marble trim

-Pizza party Fridays

15 CPW [NYO]

It’s Second-Quarter Earnings Results Week (hi-ooo) and Bank of America is poised to disappoint a lot of shareholders as a result of its insistence on doing business almost exclusively in ‘Merica. (Yes, B of A spreads the love in 45 countries but derives only 13% of its revenue from abroad). Analysts estimate that the Bank in America will report a 2% drop in profit, its first decline in 2005. Citigroup, which is among the biggest banks in Mexico, Poland and South Korea and gets nearly half of its sales from abroad, is expected to post an increase of 7.7%. JP Morgan, deriving twenty five percent of revenue from outside the U.S., is predicted to be up 6.4%.

Responding to allegations that B of A has dug its own grave by taking its name too literally (and that it’s not necessarily a great idea to put all your eggs in the ‘Merican basket when the domestic economic has been “growing at sub-3 percent”), CEO Kenneth Lewis offered: “We do better when we play to our strengths, and our strengths are in the U.S.”

Bank of America Profit Trails as Citigroup, JPMorgan Go Abroad [Bloomberg]

Alert the National Guard: Goldman has now been left out as a major underwriting playa in two—count ‘em, two—IPOs. First there was the Blackstone slap in the face, and now KKR is jumping on the “Don’t touch me there, Goldman” bandwagon. The same banks who lead the B-stone deal, Citigroup and Morgan Stanley, will be underwriting KKR’s as well.

What’s with 1-2 punch? When it happened the first time, many believed that GS and JP were working on another P.E. IPO, there was a non-compete and so on and so forth. Others wondered if Goldman’s own “aggressive pursuit of private-equity deals alienated Steve Schwarzman,” failing to take into consideration that a 5’6” tall man probably has pretty thick skin. But Blackstone’s in the past—what’s the deal with the second snub?

As Reuters points out, JPMorgan doesn’t have a private equity arm capable of competing with KKR, but Henry Kravis may “have beef with the bank,” re: First Data Corp.

Reuters reported in April that Henry Kravis and crew were fuming at the way JPMorgan handled its proposed takeover of First Data Corp. Long story short, JPMorgan owns a majority stake in a First Data joint venture. KKR tried to reassure JPMorgan that the JV was not under threat, but JPMorgan pushed back, offering to buy out First Data’s 49 percent stake in the venture or dissolve the partnership altogether, sources told Reuters. That didn’t sit well with Kravis, sources say.

So that’s JP Morgan, okay, but the lack of Goldman is still coming as a shock to those who believe Goldman Sachs rules the world and all of its inhabitants (really, though, Goldman does have the ability to make it rain). So what’s up there? Some theories:

• Goldman’s private equity arm competes directly with KKR for deals.
• As noted by the ‘Bookies, in March, Lloyd Blankfein said, “It’s impossible for us to be in every piece of business,” which is kind of like hearing your deity admit to being human and will thusly be chalked up to Blankfein being drunk, and struck from the record.
• Goldman has different looting and plundering strategies from those of KKR
• Goldman needs a nap
• There can only be one bald supermogul per IPO
• Goldman is advising Apollo, Citadel
• Goldman is the midst of a herpes outbreak
• Kravis just doesn’t think Goldman’s all that good at the private equity business
• Goldman has told KKR in the past that it would underwrite its IPO—when small mouth bass rule the world

Goldman, JPMorgan out in the cold for second private equity IPO [Reuters]
Underwriting Henry: Who’s In and Who’s Out [DealBook]
Goldman’s Hedge Fund Alumni Network [Deal Journal]

You remember Todd Thomson, the guy who got fired from Citigroup for either too loosely spending the company dime on Maria Bartiromo or because Chuck Prince needed a scapegoat to distract people from Citi’s performance (are C shareholders as easily distracted by someone getting canned as Jim Cramer is by his reflection?)? Even though he’s on his I’m-sorry-I-cheated-and-lost-my-job vacation with his family (a safari in South Africa), the old boy checked in with thestreet.com to say that he’s got plans to work in private equity.

Interestingly enough, Thomson told the news site that he believes himself to have “a clean and good track record.” Okay, sure. And getting funds shouldn’t be too difficult, given TT’s “business contacts and high-net-worth relationships.”

Ex-Citi Hot Shot Thomson Mulls a Private-Equity Comeback [thestreet.com]

Does former Citigroup CEO and Citigroup-as-a-monstrosity defender Sandy Weill read hedge fund manger Tom Brown’s blog? Hard to say (he does read DealBreaker, so maybe). TB apparently thinks so, and today offers Weill a slightly calmer, more rational plan for what he thinks should happen to Citigroup. For those of you who haven’t been keeping up, on Tuesday, Brown called C a “supersized jackalope,” and in response to Weill’s assertion that “Being large and having a strong balance sheet enables a company to withstand the financial turmoil that happens every now and then in global markets” wrote:

Why Weill thinks that investors would take comfort in that statement, I can’t begin to understand…Citi has gotten so big, and lumbering, and broadly diversified that it simply can’t generate meaningful organic growth anymore. The law of large numbers won’t allow it.

If all I wanted from my investment was an instrument that would “withstand financial turmoil” I’d simply buy Treasury bills and be done with it. Presumably Citigroup’s shareholders want something more than that.

After being shot with a tranquilizer gun, Brown sat back down at the computer and, in his own words, decided to meet Weill—and Prince, since, for the most part, he’s in charge—“halfway,” presupposing that Weill y Prince have any interest in moving an inch. Less drastic than completely breaking up the bank, Brown is now advocating for partial IPOs of Citi’s various business, with the parent company owning 80% of Citicorp, Salomon Brothers, Smith Barney and CitiGlobal, and the remaining 20% trading in the public markets.

The advantages, according to Brown, would be that:

+The people who run each unit would have a publicly traded entity whose value, for better or worse, would be directly affected by the results of their efforts. So if Salomon shoots the lights out, for instance, the results in the stock market wouldn’t be canceled out by a weak year at the commercial bank. Rather, the price of the Solly stub would presumably zoom.

+A partial IPO of Citi’s business would be a powerful force to counteract the “conglomerate discount” that so often penalizes the valuation of Citi’s stock relative to the stocks of the companies it competes against.

+Separately traded stocks could be a potent check on some of management’s nuttier capital-allocation schemes.

Weill (Prince, Prince), your rebuttal?

Citigroup’s Breakup: How About Plan B? [bankstocks.com]

The hauntingly empty lobby of Bear Stearns

Yesterday’s showdown over the fate of two big Bear Stearns hedge funds “marks an important test of the financial markets’ resiliency,” according to this morning’s Wall Street Journal. So the natural question is: how did the financial markets score? What does the report card look like on the day after several investment banks flinched from pushing these two funds over the edge?

If “Plays Well With Others” was one of the subjects being tested, several of the investment banks who were exposed to the losses at the hedge funds scored very well. JP Morgan Chase, Goldman Sachs and Bank of America all reached negotiated deals with Bear Stearns to limit their risk. Although the details are sketchy, it seems that these deals involve Bear Stearns buying back collateral assets the banks had seized, forestalling a need to auction them off.

Merrill Lynch didn’t score quite as highly in this category, and late yesterday afternoon proceeded with an auction of Bear Stearns assets it had seized. We’re told the auction met with mixed results. Some of the higher-quality assets with less exposure to the subprime market met fetched what the Journal calls “reasonably high prices.” Other assets—variously described as “sludge,” “junk in investment-grade clothing” and “immoveable objects” by traders we talked to—faired less well. The Naked Capitalism blog describes them as fetching “atrocious prices.” Deutsche Bank also seems to have opted to auction off its collateral rather than cut a deal with Bear Stearns.

But at a more fundamental level, the test may have revealed a foreboding weakness in the credit derivatives market. JP Morgan, Goldman and Bank of America are said to have pulled back from auctioning off the collateral because earlier feelers put out to potential buyers revealed that the assets they had seized would have “fetched so little in the market,” according the Journal. The idea is that if they had brought down the the Bear funds, the investment banks would have hurt themselves as well. As Alphaville puts it, "So the picture becomes clearer: eat, be eaten, eat each other, but stop before you accidentally eat yourself."

But something even more ominous also may have convinced the banks to reach a settlement a real market test for these assets—the CDOs rarely traded and are priced according to complex mathematical models—might have demonstrated that they were worth far less than they were valued at on the books of hedge funds and investment banks. This could cause a ripple effect, forcing re-valuations at many hedge funds that hold similar assets, and at the banks that lend to them.

“As its two credit focused hedge funds with about $20bn of highly leveraged assets are put on ventilators, there is real pressure in the market for the creditors not to sell the collateral for fear of undermining the value of the CDOs and other debt packages. As we all know, they are near impossible to price accurately, due to the nature of the underlying distressed assets, and if these CDO’s are valued downwards, then all hedge funds who own similar subprime assets will have to do the same and hey presto we have a falling market, more defaults and the house of cards comes tumbling down,” Finbar Taggit writes today.

In short, by flinching from auctioning off the CDOs, JP Morgan and the other banks that reached deals with Bear Stearns may have prevented what some feared would become the much heralded “systemic event” in which the collapse of one hedge fund brings down all the others. But the cost of doing so appears to be keeping the actual market values of many of these assets more or less financially illegible. And keeping markets and regulators illiterate when it comes to reading the risks of these products.

One trader we spoke to described the outcome as a “cartoon moment.”

“As long as Wiley Coyote doesn’t realize he’s run off the cliff, he won’t fall,” he said. “These guys don’t want to look down because they are afraid there may be no there there.”

Bear's Woes Test Markets' Mettle [Wall Street Journal]
Bear Stearns Staves Off Collapse of 2 Hedge Funds [New York Times]
Subprime sector hit by $1bn assets sale [Financial Times]
Bear feast - be sure not to eat yourself [FT Alphaville]

But a hedge fund manager with a virulent tongue does, and there’s some bad air between the two of them. Recently Weill, Citigroup CEO Emeritus, was quoted in the press as defending the giant bank he built. “Being large and having a strong balance sheet enables a company to withstand the financial turmoil that happens every now and then in global markets,” Weill said.

In response a former banker turned hedgie manager (of Second Curve Capital) described the company as a “supersized jackalope.” And he didn't stop there:

Why Weill thinks that investors would take comfort in that statement, I can’t begin to understand…Citi has gotten so big, and lumbering, and broadly diversified that it simply can’t generate meaningful organic growth anymore. The law of large numbers won’t allow it.

If all I wanted from my investment was an instrument that would “withstand financial turmoil” I’d simply buy Treasury bills and be done with it. Presumably Citigroup’s shareholders want something more than that.

Coming to Weill’s defense was the one other person on earth who doesn’t think Citigroup should be broken up, Saudi Prince Alwaleed bin Talal: “I am adamantly against breaking up Citigroup…I see this as a bad idea that should not even be considered.”

Portfolio's Felix Salmon has helpfully offered to arbitrate the fight. According to Salmon the problem with Citigroup is not that it's too big to grow. It's that it may be too big to manage. "If a strong leader could communicate a simple and effective vision for the company, the calls for its breakup would soon cease," Salmon writes. "But such people are hard to find."

This question doesn't really merit us making a Vizu poll, since the results will most likely be "No" (BSD) and "Yes" (everyone else), but tell us what you think, re: Should Citigroup break up?

Weill Says Big Is Beautiful; Hedge Fund Disagrees [DealBook]
Why Citigroup Should Be Broken Up - Now [Seeking Alpha]
Is Citigroup Too Big? [Portfolio]

Citigroup’s largest shareholder, Prince Alwaleed bin Talal, will sell $840 million of his Kingdom Holding Co in an IPO on the Saudi Tadawul All Share Index, Bloomberg is reporting. The sale amounts to about five percent of the company, which has assets of nearly $25 billion including a $10 billion holding in Citigroup.

The IPO has been rumored since last year. As recently as May, reports suggested that the man known as the “Arabian Warren Buffett” was planning to sell thirty percent of his company. Something seems to have forced Alwaleed to rethink the size of his float—perhaps the rough patch the Saudi Arabian stock market has been caught in. Even now there doesn’t seem to be a firm date set on the offering.

In addition to Citigroup, the Kingdom holds stakes in Apple, Motorola, News Corp and Time Warner. The offering will only be open to Saudi citizens.

Alwaleed to Sell $840 Million Kingdom Holding Stake [Bloomberg]

In a last ditch attempt to prove to, well, everyone, that Citigroup shouldn’t be broken up, Chuck Prince is using a pilot program in Boston that he hopes will lead to “more coordination among bankers” and, cue the menacing music, bigger profits (without major acquisitions). The program aims to use retail branches to lure customers who will then be able to make use of the bank’s other services (corporate cash-management, personal finance advising, etc). Bankers with wealthy clients in Boston are also being instructed to work with colleagues in New York to offer more “sophisticated financing services” that are not available in the Bay State.

One Smith Barney adviser has been placed in each retail branch up north, with Anne Greenwood, in the newly created position of “market leader” giving updates to Prince every few days. By the end of June, Citibank customers with checking accounts in Boston and a Smith Barney brokerage will see all of their information on one statement, a seemingly simple idea (“cross-selling”) but one that is being implemented by other banks (J.P. Morgan Chase & Co, Bank of America Corp, Wachovia Corp.) across the country, and will hopefully be a bottom-line money-maker for Citigroup.

There is a lot of pressure on Prince for this Bostonian Bacchanal to be successful. Obviously there are the frustrated investors, more than a bit ticked about Citigroup’s “lethargic” stock price, inflated cost structure and uninspiring financial results. Many believe that Edward Lampert, who bought 15 million Citigroup shares in May will try (with good cause) to light a spark under CP. For his part, it’s reassuring to know that Prince realized he doesn’t have “a magic wand” to make everything work and make everyone happy. We’re cautiously optimistic. A Citigroup associate we spoke to at Shake Shack told us he was able to wait the hour for his ‘Shroom burger because he’d taken the day off to interview at another bulge-bracket bank. We’re not saying, we’re just saying. (Citigroup's employees in Boston are probably hard at work, unable to wait 60 minutes at whatever B-town's Shack Shack equivalent is. Anna's Taqueria?)

Citigroup's New Frontier [WSJ]

Alpha Magazine’s hedge fund rankings are in and the banks have faired quite well. JP Morgan and Goldman took 1 and 2 (despite the latter’s 6% loss last year), with $33 billion and $32.5 billion in total capital as of December 31. In third and fourth were Bridgewater Associates and DE Shaw, who both had over $30 billion. Citigroup moved up a respectable 32 places to 13th, from its previous spot at 45. Morgan Stanley clocked in at embarrassing 53, considering all the hedge funds it bought last year.

Everyone’s favorite quant fund, Renaissance Technologies was ranked in 6th place, with $26 billion in assets. Somewhere, David Leonhardt has worked himself into an apoplectic shock and plotting to send pipe bombs to Alpha headquarters.

As a side note, we’d like to thank Financial News for referring to Amaranth as a "notable absence" from the list.

Banks top hedge fund rankings [Financial News]

Eddie Lampert may be betting that former US Treasury Secretary Robert Rubin is poised to take over as chief of Citigroup, according to a former colleague of both Lampert and Rubin. Earlier this week, Lampert’s ESL Investments disclosed that it had accumulated a 0.3% stake in Citi, setting off speculation about Lampert’s intentions. Speculation ranged from notion that Lampert might view Citigroup as cheap relative to it’s banking peers—this came from an unnamed banker who happens to work at Citigroup—to the idea that he might be poised to take an “activist investor” stance and agitate for change. Shares of Citigroup role 4% following the disclosure of ESL’s position.

“Lampert is tight with Rubin. He loves the man. Idolizes him. He may think that Rubin’s about to become a lot more involved at Citigroup, maybe even to take over for Prince,” the source said, referring to Citigroup chief executive Chuck Prince.

Rubin rose to Wall Street at Goldman Sachs before being appointed to the Treasury position by Bill Clinton. He is now the chairman of Citigroup’s executive committee. Early in his career Lampert worked under Rubin when he was an arbitrage trader at Goldman Sachs. This morning’s Wall Street Journal described Rubin as one of Lampert’s “leading role models.”

Yesterday CNBC’s Charlie Gasparino said that there was pressure for Rubin to take a more active role in the management of Citigroup. His position at the head of the executive committee brings him a hefty paycheck—reportedly $17 million—but some have said he doesn’t exercise much responsibility for the management of the bank. At least one banker employed at an investment bank described Rubin as “a relationship guy” whose job mainly involved using the connections he has made during his long career in finance and government to win business for the bank.

Prince’s tenure at the top of Citigroup has not been a happy one. The bank has been under-pressure from investors to change its management and some have even suggested that it spin off some of its constituent businesses. Prince is widely seen as unwilling to fundamentally change the structure of Citigroup.

Will Chorus Grow at Citi? [Wall Street Journal]

The big news across the wires this morning was Eddie Lampert picking up 15.24 million shares of Citigroup. Shares of Citi shot higher following the news amidst speculation that Lampert might push to break-up the company.

DeaBook quotes one observer who buys the line that Lampert might shake things up at CIti.

Mr. Lampert, chairman of the parent of the retailers Sears and Kmart, “would have the clout to make management changes,” Richard Sichel, who oversees $1.5 billion as chief investment officer of Philadelphia Trust Co., told the news service. “The market is hoping he can come in and create value in one way or another by cost cutting or finding value in the different parts.”

Many observers, however, doubted that Lampert is up to anything but buying a stock that has been badly beaten
down for most of the year. "He may just think the stock is cheap," according to a senior executive at a rival bank who was quote in the Financial Times.

Felix Salmon, who writes the Market Movers blog for Portfolio, sounds the skeptical note

Lampert is certainly a rich and powerful man, but I don't think he quite has the power that Sichel attributes to him. His friendship with Bob Rubin might get him a meeting on the third floor of 399 Park Avenue. But that's probably about it.

On CNBC, Charlie Gasparino, however, says that Lampert “could really turn the screws on [Citigroup chief executive] Chuck Prince.”

Lampert fund builds $800m stake in Citi [Financial Times on MSN Money]
Lampert took big stake in Citigroup: SEC filing [Market Watch]
Lampert Fund Takes Stake in Citigroup [DealBook]
Lampert's Options at Citigroup [Market Movers]
Street Stories: Citigroup [CNBC.com]

The last thing Sandy Weill wants is for Citigroup to break itself up (see also: the only solution for pulling itself out of the muck—and mire, lot of mire—its gotten itself into), and if slashing 17,000 jobs wasn’t enough to turn things around, he’s got a plan. Although his employment agreement includes use of Citigroup corporate aircraft for the rest of his life, Sandy will be taking one for the team and not using the jet that much anymore.

Although Weill has had a well-documented love affair with planes, and even commissioned a photograph of himself in front of one, he has “unilaterally and voluntarily decided to reduce his non-business usage of Citigroup corporate aircraft” and not at all after 2013, according to Citigroup's 2006 proxy filing. Selfless doesn’t even begin to describe it.

Of course, sources tell the New York Post that Weill regularly flies to the Adirondacks on one of the company’s smaller Gulfstreams and recently “demanded and received use of Citigroup's largest jet to fly himself and a large group of friends to Bermuda for a weeklong spree,” bumping some Citi execs onto commercial flights, but a Weill spokeswoman claims that Sandy hasn’t been to Bermuda in two years and we believe her. As a show of solidarity, Chuck Prince has pledged to wean himself off taking the elevators to his office. It's all stairs, now, baby.*

Wall St.'s Less-Frequent Flier [New York Post]

*We made that up. But, Chuck, it might be a good idea. For real. Cardio and reducing your "carbon footprint." Think about it.

Jim Cramer doesn’t want you to hate the game, or the playa. And in his column in the latest issue of New York, the “game” refers to making money; the “playas,” I-bankers (and I-bank CEOs, and, more generally, I-banks). Sure, you might be saying, why shouldn’t I hate the $54 million/year Lloyd Blankfeins and the Goldman Saches of the world? Not only are they terribly unhygienic, but they make more in an hour than I do in a month (or is that just us at DB? Don’t answer that) and I’m a jealous, small and petty person (to say nothing of my unresolved issues from childhood, which probably feed into the pettiness in a vicious, never-ending circle).

You’re saying that, right? Well Big J has the answer. If you invest said “playas,” you’ll get to be part of their “game” and your resentment will disappear because when you’re rich, you can buy the antidote to resentment. Another reason you shouldn’t hate these “playas” is because Cramer used to work for Goldman Sachs and never fails to mention this (or his relationship with Spitzer, which, let’s be honest, you really can’t blame him for, because Goldman Sachs is an incredible institution and Spitzer is essentially God’s special gift to the world and politics at large). Here are some other arguments for why you should cross Lloyd, Dick and Stanley off of your To Kill lists (hint: they all have to do with their outifts making you money, and Chuck Prince having less financial acumen than Cramer’s garbage disposal):

1. These guys are basically stay-at-home moms: underpaid and, more importantly, unappreciated.

Stop envying Goldman Sachs’ Lloyd Blankfein already. Don’t begrudge Bear Stearns’ Jimmy Cayne and Lehman’s Dick Fuld their millions. Let Merrill’s Stan O’Neal and Morgan Stanley’s John Mack get paid more than Croesus. You heard it here first: They deserve it. In fact, they deserve more than they earn now. Those five men are underpaid because they are about to make you very rich if you buy their stocks.

2. They will make you Kings of Great Neck, Dukes of Roslyn with Asset Management alone. And, not to brag or anything, but if you must know, Cramer predicted Asset Management would be a major money-maker YEARS AGO, before assets were even invented. Of course, no one at 85 Broad listened to him, just like they didn’t about gravity or 9/11.

The results of yesterday’s “Which bank has the dirtiest working conditions” poll are in. Some of the results may surprise you, some may not. If you actually read what we wrote about Bear Stearns’s in-house cafeteria and its 42 health-code points violations, for instance, you won’t (or shouldn’t) be surprised to learn that it landed in the top three (and if you read the part about contaminated food and inadequate levels of personal cleanliness and are still stunned, don’t invite us over to your home any time soon). If you didn’t know, though, that the 85 Broad is basically one step away from a gas station restroom on the Garden State Parkway (going South), you might be a bit caught off guard to learn that the Kingdom also landed at the top of the list of shame (all that glitters is not gold, indeed). Let’s examine the cold hard (dirty, disgusting, scatological) facts now.

“Firing Jamie Dimon was the worst thing Sandy ever did,” the investment banker said. It was a glorious Friday afternoon. The weather had performed an April summersault, turning over from winter to what felt like summer almost overnight. It was the kind of weather that inspires people—okay, us—to leave work early and starting drinking with friends. Which is how we found ourselves looking out onto a narrow street in the East Village drinking pints and talking about Jamie Dimon, Sandy Weill, Citigroup and JP Morgan Chase.

“It was over something completely trivial,” the banker said. He definitely had our attention with this remark. Lots of people believe that Citigroup has suffered since Jamie Dimon was let go by his longtime mentor Sandy Weill. And a lot of people have theories about why this friendship soured. But we love hearing all of them. He took the head-off his pilsner while we waited for him to expand. This is an old interviewers trick—using silence to elicit elaboration. His counter-strategy of drinking more was testing the limits of his patience.

He took the bottom off his beer and looked to the bartender for another round. We broke. “Okay, okay. What was it? What was it that got him canned?” we asked.

The next round arrived. We placed a bill on the bar but kept our hand on it. The message in the motions: keep talking and this round is on DealBreaker.

“It was something involving his daughter. Sandy’s daughter,” he said. Our hand came off the bill. This round was definitely on us. What had happened between Dimon and little miss Weill that could get Dimon thrown out of Citigroup?

“Completely trivial. I think Weill wanted his daughter to get a job, some promotion. Dimon didn’t want to give it to her. Thought she was under-qualified,” he said. “The guy I work for was in the room one day when they had a fight over it. When the fight was over, apparently so was the relationship. It was very strange because Sandy and Jamie had this whole father-son thing going on. This was Sandy choosing blood over his more or less adopted child, Jamie. Like Hamlet in reverse. The step-father kills the kid. Or maybe King Lear, with Dimon as the daughter who won’t suck up to daddy Lear.”

We aren’t even going to call Dimon’s office to authenticate this. And certainly not Weill. They probably wouldn’t comment. And if they did comment, it would just be a denial. We’d actually heard this theory before but this was the first time we’d heard it from someone claiming to have anything this close to first hand knowledge of the dispute. It was second-hand knowledge but that's as close as anyone has ever got to this story.

The next round was on us also. Not as a reward for that story. It was, after all, an old and often told story. But as an enticement for the next one, the one about Dimon’s plans for acquisitions and his meeting with Bear Stearns executives. But that will have to wait for another post.

Is the Citigroup acquisition of Deutsche Bank AG back on? Shares of Germany's biggest bank saw as much as six percent gain today (they're up 4.7% right now), and the rumor is everywhere. There were talks of an acquisition three years ago but they fell apart over fears of political fall-out.

Update: Bloomberg's on the story.

First the confirmation that the rumor is driving up the share price:

"We heard a rumor Citigroup might bid for Deutsche Bank,'' said Joerg Treptow, a trader at M.M. Warburg & Co. KGaA in Hamburg. "This is boosting the shares today.''

Next the analyst who is skeptical about the rumor.

"I place very little credibility on this speculation,'' said Jon Peace, an analyst at Fox-Pitt Kelton Ltd in London. Integrating the banks' investment-banking units would be "very costly," and Citigroup could expand consumer banking in Germany through other banks, he said.

Deutsche Bank Shares Surge on Takeover Speculation [Bloomberg]

Earlier this week we ran into an old friend who has been trading financial stocks for several years. We were in a small bar a few steps down from street level. The wall paper was a deep red, the furniture included antique looking couches, and faux-gas lamps lit the place dimly. It was the sort of place a Victorian era vampire might feel comfortable sipping absinthe while he hunted his next victim.

“It’s not that you’re wrong on Citi,” our trader friend told us. “It’s that you’re right. But everyone agrees you’re right. This is a broken company.”

“But you’re buying it?” we asked.

“Of course. I wouldn’t give Chuck Prince more than a year,” he said, referring to the chief executive of the financial giant. “And whoever replaces him won’t have any loyalty to the structure. None of the top guys have the sort of stake in it that Chuck has to Sandy.”

Prior to becoming chief executive, Prince had worked as the bank’s top lawyer under former chief executive Sanford Weill. It was during this era that Weill had built the bank into a behemoth through mergers and acquisitions. Prince has vigorously resisted calls to fundamentally reform the bank by spinning off business. Several of the top executives at Citigroup have been recently hired from outside the bank and lack the personal ties to the Weill build-up that some feel have led to Prince’s resistance to change.

“The next boss is going to start spinning things off. None of this reduction through attrition business. He’ll make his mark by remaking the bank in a leaner, meaner image. Get out from under the shadow of Sandy. And then you’ll see the stock climb,” the trader continued. “I’m buying this thing now because I think once the rumors of Prince’s retirement get out, the stock is going to start to climb.”

He twirled the olive in the bottom of his empty martini glass and scanned the room. A trio of girls were sitting by the window. They were too far from where we sat at the bar for us to overhear their conversation. We doubted they were discussing the fate of banking chief executives.

He gestured to the barteneder for another round.

“Let’s go say hello,” he suggested. He nodded toward the girls. A smile came across his face. His bright eyes sparkled. For a brief moment we thought we saw fangs where his incisors should be. A trick of the light, no doubt.

There’s been lots of chatter about Citigroup this week in anticipation of Monday’s first quarter earnings announcement. Market Beat lists five reasons why Citigroup should be broken up. Eddy Elfenbein defends Chuck Prince against the charge that he’s doing a poor job of running Citigroup. Michelle Leder wonders if Citi will disclose the Todd Thompson settlement in its 10-K. Felix Salmon hopes that Bob Druskin will succeed Chuck Prince, pointing out that he has a very evil looking mustache. Roger Ehrenberg points out that its not a good sign when you have to pay someone $800 million just to start working for you.

So let us add some fuel to this fire. We’re hearing rumors that Robert Rubin, who has been at Citigroup since leaving the Clinton administration in 1999, may step down to take a position in Hillary Clinton’s campaign for the Democratic presidential nomination. The addition of Rubin to the Clinton campaign would no doubt be a boon to fundraising—Rubin was a favorite of Wall Street as Treasury Secretary and a fundraising powerhouse for Bill Clinton. Perhaps more importantly, having Rubin attached to the campaign would make Team Obama seem intellectually shallow, particularly on financial and economic issues.

The market responded to Citigroup’s much heralded—and telegraphed—restructuring and cost-cutting plan with a big Bronx cheer yesterday, dropping the stock price nearly 2%.* The paltry savings Citi said it could achieve, the fact that the biggest savings still lie years in the future, and the news that Citi’s overall workforce would keep growing seems only to have renewed calls for more fundamental changes at the financial behemoth.

More particularly, folks we spoke to who watch Citi’s stock think its time to bring down the house that Sandy Weill built. None of them would speak on the record, but Bill Smith, chief executive of Smith Asset Management, spoke to Crain’s and nicely captures the widely held sentiment.

"You can't fix a structure that's broken," Mr. Smith argues, adding that Citi's different components would collectively be worth $90 a share if they traded separately. He says its investment banking division, formerly known as Salomon Brothers, would trade at a higher price-to-earnings ratio than Citi does. So too, he argues, would Citi's Smith Barney brokerage unit and international commercial banking operations if granted their independence.

We’re also hearing that this might be the beginning of the end for Chuck Prince. For years he was Sandy Weill’s lawyer, and many think he lacks the audacity to start tearing apart the financial structure built by his mentor.

“He’s the last of Sandy’s cronies still in place,” said a banker at a rival firm. “Citi won’t work right until he’s gone too.”

[Please remember we're still looking for stories from inside Citi. Get a pink slip? Email it to us! Completely unaffected by the cuts? Let us know. Skipping work this week because, hey, you might get fired anyway? Great. Tell us about it! Send it all to tips@dealbreaker.com. Thanks]

*Editor’s note: we realize this comes perilously close to violating our rule against asserting post hoc, ergo hoc explanations for market movements. So let us once again restate our official position on why this stock—or almost any stock—moved the way it did yesterday: it was the cumulative effect of buying and selling by investors.

Wall Street not impressed with Citi cuts [Crains]

Citigroup announced plans to cut or reassign 26,500 jobs today. The cuts hit the “whisper number” that Wall Street had been talking about all week—surprising some observers who had predicted that chief executive Chuck Prince might try to impress investors with deeper and wider cuts. Apparently Prince does not have this “better than expected” game down yet.

The actual job eliminations, in fact, barely exceeded the 15,000 number that had so notably failed to impress the markets earlier this year. Citi is cutting just 17,000 jobs out of its total workforce of 327,000—a number that some scoff at as barely better than attrition. “Accelerated attrition,” was how one Wall Street analyst put it to DealBreaker this morning. Only 1,600 jobs are being eliminated in New York City.

Another 9,500 jobs will be relocated from expensive financial labor markets such as New York, London and Hong Kong to less costly areas—perhaps India.

Citi remains an institution caught in a bind. Although Sandy Weill tried to build the bank into a one-stop financial institution, the dream of a unified banking firm remains largely unrealized. That dream, some believe has been stymied by regulations in the US and abroad that prevent Citi from realizing synergies from its combined business. Others say Citi has been damaged by a lack of leadership in its top ranks.

Even as it announced plans to streamline operations and save $2.1 billion this year through cost cutting, the bank is apparently considering spending $600 million to buy a hedge fund founded just one year ago by a former Morgan Stanley executive Citi wants to hire. That’s a pretty expensive executive acquisition program.

We’re looking for more news from inside Citi. And that’s where you come in. Email your Citi-cuts stories to tips@dealbreaker.com or leave a comment below.

Citi to Cut 17,000 Jobs in Broad Overhaul [DealBook]

Ask most people in finance and they’ll tell you that Citigroup has been one of the worst managed firms on Wall Street for at least a decade. (Maybe even longer but nobody who speaks to DealBreaker can remember back any further than that.) Chuck Prince is said to be under heavy pressure from his investors—especially another guy named Prince—to cut costs and get the stock price up.

Standing in the way of the plan to fix Citi, however, has been the inability of the bank to assemble a credible senior management team. Most of Sandy Weil’s “cronies”—we’re not sure why, but Sandy is the only Wall Steeter we know whose staffers are consistently referred to as “cronies”—have left or been let go. Many executive positions remain vacant, there are consistent rumors that top people are leaving and many of the top spots have been filled by outsiders. The move to hire a former Morgan Stanley bigshot by buying his hedgefund for $600 million looks like a sign of desperation to fill out the top ranks of the firm.

Can Citigroup be saved? Or do we need to destroy this Citi in order to save it? We’re inviting you to share your ideas on how to fix the bank that Sandy built.

Citigroup’s Chuck Prince was apparently disappointed by the market’s reaction to the announcement that Citi was eliminating 15,000 jobs. Now he’s throwing another 11,000 jobs onto the funeral pyre, according to published reports.

When Citigroup went public with the job cuts and other cost cutting measures, it was clear that they hoped the market would read this as a serious effort to improve Citi’s bottom line. But the stock price stubbornly refused to cooperate. This time around Citi is reportedly coming back with a plan to “eliminate or reassign” 26,000 jobs. Will this move the needle when it is announced tomorrow?

Perhaps not. According to a hedge fund trader we spoke with this morning, timing the additional job cuts announcements with news that Citi might spend $600 million to acquire one guy—former Morgan Stanley executive Vikram Pandit—and his year old hedge fund undermines the credibility of the bank when it comes to cost-cutting. Then again, the hedge fund trader we spoke with was admittedly jealous that no-one was offering him $600 million for his fund.

Citigroup’s Revamp May Trim Its Compliance Corps [New York Times]
Citigroup’s mulls U-turn on Old Lane [Financial Times]

Chuck Prince knows that it’s always a good idea to not only be out of the country when your company is announcing its plans to fire 15,000 employees but to schedule a photo-op of you looking like there’s not a thing in the world that could get you down. Not even the news that ABC would be destroying all tapes of “Coach,” thereby shattering any dream of a second run at syndication. And we all know what a tragedy that would be. A world in which Craig T. Nelson doesn’t exist—I don’t even want to think it.

But maybe Prince can be forgiven for grinning from ear to ear yesterday, amidst the axings, as he was in New Delhi—which he’s proclaimed a “key component” in Citi’s scheme to raise international revenue to 60% of total sales, and where there are no reminders of MariaGate, or that petulant umbrella he purportedly loathed so much—his favorite place on earth. He also may have even more reason to smile, if everything in Japan goes as planned. Fortune’s Clay Chandler writes:

In Japan, Citi has put up $14 billion to gain control of scandal-tainted Nikko Cordial, Japan’s third-largest securities brokerage. That deal - the largest foreign acquisition in Japanese corporate history - would bring Citi 110 branches, 2 million customers and $250 billion in retail client assets. More importantly, though, it would transform Citi into a major investment bank power in the world’s second-largest economy and put it in position to challenge domestic leaders Nomura Holdings and Daiwa Securities.

And in China, Citi’s been one of the only foreign banks given permission to incorporate locally; they have 16 mainland branches and have plans to open another in Hangzhou, next month. Chandler notes that the bank also has long term plans to seize opportunities in Vietnam, where there’s potential in “getting in on the early stage of an economic takeoff.”

These deals together could be enough to “transform an already sprawling empire into a truly far-flung global behemoth,” Chandler says. But skepticism remains regarding how much profit the deals could actually generate, and whether they’ll do so soon enough for shareholders, who don’t believe the removal of Todd Thomson was an effective enough cost-cutting measure. Sounds like someone needs another $34 bison burger and fatherly advice.

Citi’s Prince: The Sun Never Sets on His Global Ambitions [Chasing the Dragon]

"Human Beings Still Important at Citigroup"

[Traders Magazine via Crossing Wall Street]

Chuck Prince—who helms the good ship Citigroup as it continues to narrowly avoid wreckage on hazards called Demand for Break-Up, Stock Underperforming, Expenses Outrage, Unsatisfied Arabs and Maria Bartiromo—took in nearly $26 million dollars this year.

That's modest compared to some of his Wall Street peers but then Citigroup's stock performance has been pretty modest too.

What's most interesting is the rumor we heard today from a completely unreliable source. We mean that. Completely unreliable. But still entertaining and that's why we still read his emails.

At that lunch at Four Seasons a couple of weeks ago, Sandy Weill told Chuck Prince that the true measure of success in the finance world is having a working fireplace in your office, according to our source (who, we repeat, has no discernable way of learning such things). This struck us as far fetched until we asked around.

And at least this much is true: way back when he kept an office on the 106th floor of the World Trade Center, Sandy Weill had a working fireplace in his office. We're not sure what this symbolizes about the guy who built Citigroup—and we're pretty sure that the Prince and Weill conversation did not involve the fireplace at all—but surely it symbolizes something. A working fireplace in the World Trade Center? Talk about symbolic, meaningless, wasteful acquisitions.

For Citigroup’s C.E.O., It Was a Very Good Year [New York Times]

So now we know how much it costs to buy off the chief executive of American Express—$10 million. That's the compensation package for incoming Citigroup chief financial officer Gary Crittenden disclosed today in a filing with the Securities and Exchange Commission. That's about twice what he was making as chief financial officer of American Express.

But is it enough? Some people in the banking industry we spoke to today have their doubts. They wonder if Crittenden could have been enticed to leave his job at American Express, where he has a long history and a loyal base that might have eventually boosted him up to the chief executive slot, for the disclosed compensation package. So was he offered or promised more?

Now, by way of background, Citigroup has a history of luring top executives away from their companies to work under the Citi umbrella. (And, yes, we know that metaphor doesn't work any more. Just try to keep up.) Before Crittenden there was Sanford Bernstein chief executive Sallie Krawcheck, who was hired on by then-CEO Sandy Weill to clean up a scandal-wracked brokerage division. She went on to become chief financial officer before returning to the brokerage after the latest scandal-tinged reshuffling at Citi saw Todd Thomson, a former chief financial officer and head of the brokerage unit, leave under a cloud of lavish spending and inappropriate use of a corporate jet to transport CNBC stewardesss anchor Maria Bartiromo around the world.

So maybe it's just so sweet working for Citi that any executive would jump at the chance. But doubts persist (notice the weasely passive tense there we use to conceal that the doubters are us and some folks we talk to) that Crittenden would leave AmEx for the chance to work for Chuck Prince. After all, Chuck isn't exactly a legend like Weill, and being the chief financial officer of Citigroup isn't exactly like being put in charge of cleaning house after a serious financial scandal. Rumors had it that the job was so awful—and the details of the awfulness were never clear but we can guess that boring, thankless and Sarbanes-Oxley were a part of it—that Sallie Krawcheck was practically jumping out of her skin to get back to the brokerage.

But what could they have offered Crittenden? A source who has never worked at Citigroup and therefore has little credibility offers this completely irresponsible speculation—they offered him the chief executive spot once Prince retires.

The major problem with this notion is that it leads directly to the question of why Sallie Krawcheck would stick around Citi if she wasn't expecting to score the chief executive spot. With Thomson out of the way, she faced little internal competition. And surely her network inside Citi is good enough that she'd know if Crittenden had been promised the top slot. We suspect that if Krawcheck knew that succeeding Prince was out of the question, she would leave Citi altogether. She certainly doesn't need the money, and even if she did there are plenty of other Wall Street firms who would be all too eager to score someone of her stature.

So we're faced with a paradox. It's not entirely plausible that both Krawcheck and Crittenden would both be at Citi if either one of them had been promised the top slot. And it's not entirely plausible that either one of them would be there without such a promise. Yet there they both are.

Facts are stubborn things. Is there a way to untie this Gordian knot? Well, perhaps they've both been promised the top spot. If that sounds way too scheming, too much like something out of HBO's "Rome"—well we suggest you do some reading up about what happened when Citicorp and Travelers merged. Short answer—Citicorp head John Reed and Travelers boss Sandy Weill shook hands and agreed to jointly run the place. Next thing anybody knew, Reed was gone and Sandy sat alone at the top of the newly minted Citigroup.

There's always the more innocent answer, of course. That is that neither Crittenden nor Krawcheck have been promised anything, and will both spend the next few years fighting to establish themselves as the CEO-in-waiting. Which, come to think of it, sounds like it will have exactly the same result as the two promise paranoid theory. Pick your poison. Either one sounds like it should make for some interesting times at a Citigroup facing the world without its umbrella.

[Note: An earlier version of this item incorrectly identified Crittenden as the former CEO of American Express.]

Citigroup Lists Crittenden Pay [Wall Street Journal]

Yesterday Maria Bartiromo, uhm, scored with a top Citigroup executive.

Sorry. Scratch that.

Yesterday Maria Bartiromo scored an exclusive interview with former Citigroup CEO Sandy Weill. There was a bit of a double news hook for the interview. Yesterday Citigroup had revealed in its annual report that the Securities and Exchange Commission is investigating the bank's accounting and tax reserves related to its $31 billion purchase in 2000 of Associates First CapitalThere. Sandy was chairman in those days, so Maria and co-host Dylan Ratigan asked him some questions. Which he totally declined to respond to. It was all no comment this, and I haven't read the annual report that. This was actually kind of newsmaking. The world learned that Sandy Weill, the man who built Citigroup, doesn't read the annual reports right away and doesn't watch the daily movements of the stock prices.

The other alleged news hook for the interview was some sort of charity thing involving schools. Someone won an award. Maybe it was Sandy. Snore.

But apparently nobody but us paid attention to anything as esoteric as what happened in the interview. It was all just jaw-dropping amazement that CNBC, or Citigroup, or Sandy Weill or Maria Bartiromo had the gall or the guts or something else to set up this interview in light of the recent questions about the propriety of Bartiromo's possibly compromising relationships with Citigroup executives.

TVNewser's anonymous sources give voice to the shocked masses:

An longtime CNBC viewer wrote to TVNewser: "Have they lost all ethical thought and reason in Englewood Cliffs? I sat there with a stunned look on my face the whole time the interview was going on."

"Why shouldn't she do the interview? She did nothing wrong," a CNBC insider responded...

> Update: 9:35pm: "Just the hint of scandal makes the interview stupid from a P.R. point of view. Why risk credibility with viewers by giving the interview to Bartiromo?," an e-mailer adds...

Ex-Citigroup CEO Weill Declines To Comment On SEC Probe [CNBC]

Bartiromo Interviews Former Citi CEO [TVNewser]

This morning we noted that Citigroup's appointment of a new chief financial officer has done little to quiet speculation about who will succeed Citi's CEO, Chuck Prince. Judging by your emailed responses, quite a lot of DealBreaker readers have some strong opinions on this. So we bring you a DealBreaker Reader Poll. As always, feel free to vote other by entering a nomination in the comment section below.

The latest round of musical chairs at Citigroup has found American Express chief financial officer Gary Crittenden sitting in chief financial officer chair at the bank. For those of you keeping score at home, that position was vacated by Sallie Krawcheck last month. Krawcheck moved out of the CFO slot last month to head Citigroup's global wealth management division after it's former head, Todd Thomson, left Citigroup under a cloud and amidst rumors about lavish spending, travel and an inappropriate relationship with CNBC on-air personality Maria Bartiromo.

But if Citigroup hoped that naming Crittenden would quite the rampant rumor-mongering and speculation about further possible moves and successions, it's likely to find that hope frustrated. The very first sentence of this morning's Wall Street Journal report on the Crittenden hiring makes it clear that Wall Street's eyes remain focused on the top-prize at Citigroup—who will succeed chief executive Chuck Prince.

Citigroup Inc.'s naming of American Express Co.'s chief financial officer to be the New York-based bank's next finance chief fills a gap in Chief Executive Charles Prince's leadership team but doesn't clear up who eventually will replace him as CEO.

Before his sudden departure, Thomson was thought to be a likely successor. Here's the Journal's list of the remaining likely successors:

If he is ever considered for the top job, Mr. Crittenden would join five other Citigroup executives as potential successors to Mr. Prince, who is also chairman: Manuel Medina-Mora, head of Citigroup in Latin America; Tom Maheras and Michael Klein, co-presidents of the corporate-and-investment bank; Ajay Banga, head of the international consumer business; and Ms. Krawcheck.