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Goldman Sachs has downgraded Citigroup, the nation's largest bank, estimating that it will have to take a $15 billion hit due to its exposure to the subprime meltdown. Two weeks ago, Citigroup estimated that its mortgage related write-downs would total from $8-$11 billion as its CEO, Charles Prince "resigned."

Goldman analyst William Tanona wasn't thrilled with Citigroup's decision to pink-slip its CEO:
"The lack of leadership at this point in Citi's storied history could not have come at a worse time," Goldman analyst William Tanona wrote in a note to clients. "With deteriorating consumer and housing metrics, Citigroup is facing mounting pressure across many businesses." Citigroup's stock is down 39% on the year, and Tanona fears that the subprime debacle may be spreading to the consumer credit markets:
Goldman estimated Citigroup will have to book $15 billion in write-downs over the next two quarters related to its $43 billion in exposure to complex securities called collateralized debt obligations. Citigroup already has said it expects to see a loss of $8 billion to $11 billion on those positions. Goldman expects the bank to take the full $11 billion hit and then another write-down of $4 billion in the first quarter, an estimate based on weakness in indices that serve as proxies for the value of mortgage-related securities.

The situation isn't very sunny outside of the investment-banking unit, either. Citigroup will feel "the pain" of a worsening consumer-credit environment in its retail banking and cards divisions, the Goldman note said. Gosh. It sounds like Citi needs a hug.
Citibank's chairman and CEO Charles Prince announced his resignation Sunday, citing the subprime meltdown as the reason for his departure.

"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," Prince said in a statement issued by Citigroup. "This is what I advised the board." An interim CEO has been chosen as the nation's #1 bank faces up to $11 billion in additional subprime writedowns.

Which CEO will the subprime meltdown take next?

A Senate hearing today called up executives in the credit card industry to defend their anti-consumer practices, their explanations provoking laughter from the crowd.

The bank's defense concept of "trailing interest" was one such occasion for comedy. Under this scheme, if an individual owes $5,020 and pays $5,000 of it, next month they pay interest on the full $5020, not just the $20 owed. Reports Consumer Affairs:

Bruce Hammonds, president of Bank of America Card Services, Richard Srednicki, chief executive officer of Chase Bank USA and Vikram Atal, Chairman and CEO of Citi Cards, all said that "trailing interest" is a practice shared by various lending schemes but gave no specific examples.

Fees are only allowable to the extent they cover costs incurred by the business. They are not a money-making mechanism. The miraculous realization of this fact, after Senate prodding, is why many large lending institutions are getting rid of some of these ridiculous fees. Only continued inquest, however, will ensure that real reform is enacted and that bank's aren't just throwing out a minor compromises to placate the committee. — BEN POPKEN

Citigroup announced it will stop using the "Universal Default" clause for credit card borrowers, which should come as a surprising piece of good news for consumers.

Universal Default is a contractual clause that lets a lender raise your rates to the default rate if you default on obligations with other lenders. Default rates are usually 24% and up.

A debtor who defaults with one lender represents an increased financial risk, and it makes sense for other lenders to raise their rates to reflect the increase. However, going from the low teens to 24% is simply onerous. Also, it just doesn't seem to make sense, economically or from a customer service standpoint, to treat someone who has defaulted elsewhere as if they have defaulted with you.

In any event, Universal Default is gone at Citigroup. Here's hoping other credit card companies will follow suit. — BEN POPKEN

Buckle yourselves in, boys and girls. Is this email we just received from Kate H. the first rumbling of another massive slate of Citibank security breaches?

This morning, I got a VM from CitiCard asking me to call in regarding a security problem with my card. Not trusting a random VM, I went to the Citi website and called the number for reporting fraud. Turns out the VM was legit. My card has been "compromised" - employees can't tell me why, of course - and I'm getting a new card and new account. They are over-nighting the new card to me. Was told by customer service rep that she had dealt with "several" calls like mine today.

There is no fraudulent activity on my account.

Why won't Citi tell us where the breach occurred? If certain retailers repeatedly cause these breaches, I'd like to know so I can avoid using my card there in the future. If Citi causes them - I'd like to know that too.

We don't want to jump the gun here: this could just