Citi's Prince Faces Revolt

Monday's writedown festival has renewed calls for change atop Citi(C).

Citi shares rose 3% Monday in spite of a sobering third-quarter earnings forecast issued before the market opened. Citi predicted a 60% drop in third-quarter profits, due in large measure to a $3.3 billion hit tied to writedowns in mortgage securities and leveraged buyout debt.

Mike Mayo, an analyst at Deutsche Bank, attributes the rise to a sense among investors that the latest pratfall will eventually lead to the ouster of CEO Chuck Prince. Prince has been under the gun for more than a year, and the bank's weak performance in the third quarter won't help make Prince's case with a restless Wall Street, the analyst says.

Citi has been a "dramatic underperformer from a stock standpoint," says Mayo, who has a buy rating on the stock. "There has been a series of operational shortfalls, a few bad management decisions and ... writedowns in the same quarter when the CEO said the private equity environment is fine. If not now, in this particular case, then when?"

Over the past few years, Citi stock has lagged behind its peers Bank of America (BAC) and JPMorgan Chase (JPM), as expenses rose and revenue stagnated.

The stock rallied late last year amid talk that Citi was planning a big management shake-up or a major change in strategy. But none was forthcoming. Instead, Prince named Robert Druskin chief operating officer and put him in charge of a review process that culminated in April with 17,000 firings.