An Investor Coup at Prince's Palace

When does the news "our third-quarter earnings will fall by 60 percent" turn into "shares climb by more than two percent"? Evidently, when the person delivering it is Chuck Prince.

Citigroup announced this morning that the recent credit market woes will impact its third quarter considerably, that its profit will fall by 60 percent, and that it will be forced to write down billions due to loans related to buyouts and exposure to mortgage-backed securities.

There was little attempt to spin it in a positive light. "Our expected third quarter results are a clear disappointment," said Citigroup C.E.O. Charles Prince.

So why are Citi shares staging a mini-rally on the news? Because investors are sure that the dismal news will lead to Prince's departure.

Deutsche Bank analyst Michael Mayo is helping to fuel the fire. He called today's announcement the "tipping point for a change at C.E.O. of Citigroup," according to the Wall Street Journal. Mayo even went on to suggest Robert Rubin, the former Treasury secretary, as the interim replacement. He said the bad news could ultimately be good news for Citigroup shareholders.

Plenty of shareholders have been calling for Prince's ouster since the bank's shares have languished in recent years. It's not a stretch to conclude that this quarterly announcement could be his last at Citigroup.

But if Prince's resignation is really what they're hoping for, investors would be wise to keep their enthusiasm contained until the news is actually news. After all, if Citigroup shares continue to climb in anticipation of his departure, there may be no need for the board to show him the exit door.

by Megan Barnett