Behind Sallie Krawcheck's exit from Citi

Sallie Krawcheck is leaving Citigroup (C). The exit of Krawcheck, chairman and CEO of the bank's global wealth management unit, stems from disagreements with Citi CEO Vikram Pandit and a decision, made by him last week, to shrink her responsibilities inside the company.

Sources close to Krawcheck and Citi say that the tension revolves mainly around the amount of money that Citi owes clients who invested in hedge funds and auction-rate securities that turned out to be toxic investments. Krawcheck argued in favor of Citi's responsibility to pay clients back, in effect, for defective investments distributed by her brokers and bankers. Citi's multi-billion-dollar auction-rate securities settlement, announced in August, caused a rift in her relationship with Pandit, who according to one source preferred to take a tougher line with clients. The settlement requires Citi to return to individual investors, small businesses and charities all $7.5 billion that they invested in auction-rate securities via Citi.

Citigroup declined to comment on the Krawcheck situation. But sources confirm that last week, Pandit moved to take away her CEO title and operating responsibility for the wealth management unit, leaving her as chairman with client responsibility. She didn't like that. Then, this morning, news swept through Citi that the unit, instead of reporting to Pandit, would be overseen by John Havens, who is CEO of Citi's institutional clients group. A release this afternoon will announce Krawcheck's exit and her replacement as CEO of global wealth management: Michael Corbat, who currently heads the corporate and commercial bank within Citi's investment banking division.

I had breakfast with Krawcheck late last month. Not that she clued me in to her impending departure, but I'm not surprised nonetheless. We talked a lot about Wall Street's woes and the fact that women are not progressing there. Of the trio of Wall Street's most powerful women, in fact, she was the last one standing. Lehman Brothers (LEH) CFO Erin Callan lost her job in July and is now at Credit Suisse (CS), while Morgan Stanley (MS) president Zoe Cruz was fired by her boss, John Mack, late last year.

Tagged "the survivor" by some, Krawcheck seemed loyal to a fault. Recruited to Citi from Sanford Bernstein in 2002 by former CEO Sandy Weill, she is one of the few senior execs (besides senior counselor Bob Rubin and chairman Win Bischoff) who stayed through those six years. Just before she arrived, she was heading stock-research outfit Sanford Bernstein and was the subject of a Fortune cover story,  "In Search of the Last Honest Analyst." As chief of Citi's Smith Barney brokerage unit, she cleaned up problems related to its conflict-of-interest scandals.

Another cover, "Can Sallie Save Citi?," followed in 2003. Her star dimmed as she took on the dual role of CFO and head of strategy the following year. Last month, she wouldn't share details about her struggles there, but she was known to clash with then-CEO Chuck Prince on key decisions. The Citi board ousted Prince late last year and replaced him with Pandit.

Going back to running a business unit -- Citi's private bank plus Smith Barney -- was a relief for Krawcheck. Her global wealth management division brought in $13 billion last year. Its profits are expected to be down this year, but not dramatically, so it's a relative safe haven amidst Wall Street's bigger troubles.

Her latest comedown is quite a turn for the star once seen by some as a possible CEO of Citi someday. She doesn't have another job lined up, but she has a long runway ahead and broad perspective on the business world, from her Citi assignments and her role on the board of Dell (DELL). Says one high-level Citi exec: "The people who work with her love her. Whoever gets her will be lucky."