Citigroup turns to Robert Rubin

Rubin, 69, said the company is establishing a new unit that will focus solely on managing assets related to subprime mortgage securities and their "resultant exposures." He said the unit will be separate from other parts of the capital markets and banking businesses.

While Prince accepted responsibility for the fiasco, he tried to paint a positive outlook for the bank. "We have made strong progress in our strategy for building for the future, evidenced in the momentum we have achieved in most of our businesses," he said in a statement. "Nevertheless, it is my judgment that given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as Chief Executive Officer is to step down."

Investors said Prince's departure was fitting. "It's…what one would have expected," says Adam Compton, an analyst with RCM Capital, which owned 800,000 shares of Citi as of June.

Even before the subprime crisis began to snowball a few months ago, Prince had faced calls for his resignation from investors unhappy with the decline in the price of Citi's shares. But Prince had shown himself able to confront those attacks with assurance until just a few weeks ago. In October, he said during a conference call that, by any fair assessment, Citi's strategy of being a global financial supermarket was working. And he told the Financial Times in July that the company would continue to make loans to leveraged buyout firms. "As long as the music is playing, you've got to get up and dance…. We're still dancing," he told the FT.

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The tone of Prince's recent statements were in sharp contrast to the gravity of problem unfolding in the credit markets and within the company. Prince, 57, a lawyer and confidant of former Citigroup CEO Sandy Weill, never convinced investors he had the right skills for the job.

Rubin will focus on finding a new, permanent CEO. He will lead a search committee that includes directors Time Warner CEO Richard Parsons, Alcoa CEO Alain Belda, and Franklin Thomas, a former CEO of the Ford Foundation and the TFF Study Group, a nonprofit organization focusing on South Africa.

The drama at Citi isn't over. The bank's stock is now down more than 40 percent from its 52-week high in early January. And the ratings downgrades on mortgage-related assets held by Citi, JPMorgan Chase, Bank of America, and other major banks could complicate their joint effort to establish an $80 billion fund to stabilize the market for structured investment vehicles. These SIVs have been shut out of the commercial paper market, leading to several SIV defaults. The fund, an initiative the U.S. Treasury has endorsed, is geared toward higher-rated assets, and if the rating on Citi's assets falls too far, it could have trouble selling them to the fund.

If anything, Prince's forced retirement is a belated sign the company is mired in a financial crisis that could take years to clean up and the scope of which isn't yet fully understood.

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