Fixing Citigroup Will Test Rubin

Correction Appended

Throughout a long, public career, Robert E. Rubin spanned the highest reaches of Wall Street and Washington, and succeeded wherever he went.

Citigroup’s chairman, the former Treasury secretary Robert E. Rubin, advised Sanford I. Weill when he headed the bank.

Now he may be facing his most difficult challenge - helping to revive Citigroup, which said yesterday that it would take an additional billion to billion write-down related to subprime mortgages, on top of the .9 billion reported in early October.

The unexpectedly large write-down, which could wipe out fourth-quarter earnings, underscores the disarray at Citigroup, the once-proud institution built by the financier Sanford I. Weill, and the deepening crisis in the broader housing and credit markets, which threaten to weaken the overall economy.

The troubles at Citigroup, "the House that Sandy Built," have become so deep that Charles O. Prince III resigned yesterday as chairman and chief executive. Mr. Rubin, 69, the former Treasury secretary who was recruited to the bank in 1999 as an adviser to Mr. Weill, was named chairman while the board begins a search for a chief executive.

At an emergency meeting yesterday, directors named Winfried F. W. Bischoff, the head of Citigroup Europe, as interim chief.

That Mr. Rubin was named chairman and not interim chairman suggested a degree of urgency. To attract a strong candidate, turning over both titles is probably necessary. "He wants to find somebody as chairman and C.E.O. so he can step down," said a person briefed on the situation.

In an interview yesterday, Mr. Rubin said he was committed to the company but did not give a timeframe for remaining as chairman. He was also firm that the bank's international and internal growth strategy would not change. Mr. Bischoff, 66, acknowledged that he was a stabilizer, but he left open the possibility of a strategy change. "That is for a new C.E.O. for the future," he said.

Citigroup's board also formed a four-member search committee, led by Richard D. Parsons of Time Warner, to begin what it called an expeditious process to identify a permanent chief. Mr. Bischoff said he was not a candidate.

At stake is the future of Citigroup as a financial supermarket, the legacy of Mr. Weill's vision and the reputation of Mr. Rubin as an executive with a Midas touch. Many investors are calling for the bank, which was already partly dismantled during Mr. Prince's tenure, to shrink to a more manageable size under its new leadership.

Their main complaint has been that Citigroup is trying to be too many things - a commercial bank, a brokerage firm, an investment bank, a credit card company. Mr. Weill promoted the idea that the different businesses would make the others stronger, by offering one-stop financial shopping to customers.

But its operations in more than 100 countries have spread management thin and made it difficult to keep tabs on risks. Its technology systems are outdated. Its cowboy culture and internal politics have proven difficult to rein in, and its sheer size makes it hard to move the profit needle.

The bank's recent troubles go far beyond a stock price that has fallen about 20 percent since Oct. 1, when the bank said that third-quarter earnings had dropped 57 percent. There have been bad trading bets at its investment bank; souring mortgage and credit card loans in its consumer division; and across the company, bloated costs and a shortage of talented managers.

Mr. Prince, who has been under pressure for months, offered his resignation after the latest earnings blow became clear. "It is my judgment that the size of these charges makes stepping down the only honorable course for me," he wrote in a memo to employees yesterday. He will leave with 5.2 million in cash and stock, on top of the .1 million in pay he took home in the last four years, according to data from Equilar and James F. Reda & Associates.

He becomes the second head of a major investment bank to exit because of problems related to subprime mortgages. The chairman and chief executive of Merrill Lynch, E. Stanley O'Neal, was forced to retire last week.

Yesterday Citigroup turned to two elder statesmen to guide it through this turbulent period. Mr. Bischoff, who has been with the company since it acquired the British bank Schroders in 2000, is respected and trusted by Citigroup managers. And Mr. Rubin, whose career includes a stint as co-chairman of Goldman Sachs and the run as Treasury secretary, has experience navigating crises.

Mr. Rubin has long resisted taking a more active role in Citigroup. "Initially, he said he would do it, but he was hoping there would be a co-chairman. But he stepped up and did what was necessary," said a person briefed on the situation who was not authorized to speak publicly. "There wasn't anybody else."

While Mr. Rubin has turned down offers to run Citigroup before, this time Citigroup's board may have made the case that becoming chairman is a public service obligation and not a job promotion. The chairman post also gives him the chance to repair his legacy.

To many, it is a responsibility that he should have taken on long ago. "Investors are frustrated that he is speaking to think tanks and not to them at a company that has been so severely underperforming," said Michael Mayo, an analyst at Deutsche Bank.

In his book, "In an Uncertain World," Mr. Rubin made it clear that his aim was to return to the private sector after leaving Treasury. "What I was really trying to create for myself was some type of consigliere position," he wrote.

Reporting was contributed by Annie Correal, Barnaby Feder, Landon Thomas Jr., Heather Timmons and Julia Werdigier.

Correction: November 6, 2007

A picture yesterday with the continuation of a front-page article about the challenges facing Citigroup’s new leadership was published in error. The person shown with Citigroup’s new chairman, the former Treasury secretary Robert E. Rubin, was Manfred Bischoff, supervisory board chairman of Daimler — not Winfried F. W. Bischoff, the head of Citigroup Europe, who will become Citigroup’s interim chief executive.