On Sunday night July 10, the No. 2 executive at Citigroup Inc., Robert Willumstad, phoned his mentor Sanford Weill with big news: He planned to quit.

Mr. Weill, the man who built the banking giant, didn't try to dissuade him, according to a person familiar with the call, and said that he understood. Two weeks later, Mr. Weill himself tried to bolt Citigroup, attempting to surrender his post as chairman.

Then this week, Marjorie Magner, Citigroup's global consumer-banking head and one of the highest-ranking women in financial services, decided to bail out too. People inside and outside the firm are asking: What is going on at Citigroup?

The answer, in brief, is that it's being remade. Charles O. Prince, the lawyer who took over two years ago as Mr. Weill's handpicked successor, has replaced his mentor's intent focus on fast growth, acquisitions and year-to-year earnings gains with a longer-term perspective: shoring up the firm's reputation and regulatory relations with a new concentration on internal controls and ethics. He is selling off some operations, such as asset-management and life-insurance units, while acting to mollify regulators who have come down hard on Citigroup in recent years.

Where Mr. Weill watched Citigroup's share price vigilantly, his eyes often darting to his stock monitor during meetings, Mr. Prince sees Citigroup not just as a profit-making business but as a "quasipublic institution." In the past year, the former general counsel says, he has spent half of his time on issues of culture and values.

His management style also is new, and unsettling to some. In place of Mr. Weill's habit of brainstorming over strategic issues with a few close aides and giving operating chiefs considerable autonomy, the more cerebral Mr. Prince has set up a host of oversight committees, hired lawyers for top positions, studied reports and polls, and centralized operations and technology.

Mr. Weill, Mr. Willumstad and Ms. Magner all chafed at having their advice ignored on key strategic decisions, people who know them say. Meanwhile, Citigroup in July reported its first year-to-year quarterly earnings drop in four years, and its stock has been largely stuck in the 40s for about a year.

When Mr. Prince took over in 2003, the world's largest financial-services company was embroiled in a series of scrapes that hurt its reputation. It was penalized for blurring the line between analysts and investment banking. It lost its private-banking license in Japan and faced probes of an aggressive bond-trading strategy in London that participants dubbed "Dr. Evil." The Federal Trade Commission accused a Citigroup consumer-lending unit of misleading customers. And Citigroup drew flak over its role in financing fraud-ridden companies including Enron Corp., WorldCom Inc., Adelphia Communications and Parmalat. In all, the firm faced billions of dollars in fines and settlements.

Moreover, Citigroup had no choice but to change Mr. Weill's modus operandi of continually extending its reach and devouring competitors. Citigroup has grown into a giant that operates in 100 countries with 300,000 employees, offering everything from investment banking to credit cards. But in an unusual rebuke, the Federal Reserve in March barred Citigroup from making major acquisitions until it gets its regulatory and ethical house in order. The Fed didn't say just what kind of acquisitions it was banning or for how long, but said management mustn't let mergers distract it from improving its governance.

The result: a sprawling multinational colossus is now drawing inward, focusing on internal controls while curbing the expansionary thrust that long defined it. Add a new chief's moves to consolidate his power, plus a difficult interest-rate climate for banks, and the result is to make Citigroup a scene of executive-suite tensions.

Mr. Prince is open about his changes at Citigroup, including strengthening the bureaucracy to change the culture, even at the cost of immediate financial results. "You can never sacrifice your long-term growth, your long-term reputation, to the short term," he said in talking to Columbia University students this week.

In an interview, Mr. Prince says: "Look at what I've had to do -- clearing the decks of problems and rolling out a new ethics model. These aren't center-of-the-plate issues for Sandy, but I think they are exactly what the company needed. The times we're in required the kinds of things I'm working on."

He is determined to put in place a team that will carry out his directives rather than resist them. In a sign of his unrelenting attitude on ethical corporate behavior, Mr. Prince remarks: "No town of 300,000 wouldn't have a jail."

The 55-year-old CEO is giving himself plenty of time. He says he hopes to run Citigroup for 10 years or more.

The executive turbulence broke into public view in July, when Mr. Willumstad, chief operating officer and a longtime Weill lieutenant, announced he would leave. He said he wanted a chance to run a public company. Privately, he told colleagues he had also grown increasingly frustrated with the direction in which Mr. Prince was taking the firm and no longer felt he was a partner in leading it, they say.

This wasn't the role he had envisioned when he lost out for the top job. Mr. Weill persuaded Mr. Willumstad, who had three decades of banking experience, to stay on with a pledge that he and Mr. Prince would be "partners." As if to prove it, the board gave the two exactly the same salary and stock awards.

Because Mr. Prince, long Citigroup's general counsel and Mr. Weill's closest adviser, had relatively little experience running a Wall Street business, Citigroup needed Mr. Willumstad to oversee operations. That was especially true of the consumer operation -- credit cards, lending and banking to individuals -- which had consistently delivered strong profits through Wall Street's ups and downs.

The partnership worked for the first year. Executives say the pair and Mr. Weill, who stayed on as chairman, met weekly. But in the past year, the weekly lunches stopped. Instead, Mr. Prince brought into his inner circle more staff officers, assigned to areas such as risk control, administration and business development. Monday-morning meetings of business heads that Mr. Weill had established turned into sessions in which half of those present weren't line executives but staff people.

Friends of Mr. Weill say the changes surprised him. He declined to comment. Mr. Prince says that Mr. Weill himself pulled out of day-to-day operations when he passed the baton, adding that he and Mr. Weill remain close friends.

As for Mr. Willumstad, he complained in recent months to Mr. Prince about "excessive bureaucracy" at the executive level, and warned that revenue growth was drying up, according to people familiar with the situation. They say Mr. Willumstad considered leaving for six months, and finally decided to when he was approached about other CEO posts, including Fannie Mae's (which he didn't pursue). Mr. Willumstad formally leaves at the end of the summer.

Conflict between staff and business executives erupted over the budget. Late last year, Mr. Prince and his financial team ordered all business units to reduce annual expenses by 5 percent in 2005. Robert Druskin, head of the corporate and investment bank, and Todd Thompson, head of global wealth management, strongly disagreed, says one executive, who says Mr. Druskin complained that Citigroup was underinvesting in its business. This person says Robert Rubin, the former Treasury secretary who is chairman of the executive committee, warned against cuts and organizational changes that could stymie long-term growth.

A spokeswoman, who said she was speaking for Messrs. Druskin, Thompson and Rubin, said that there was lots of discussion, but in the end everyone agreed and the cuts were made.

The debate over growth versus cuts came into sharp focus when Citigroup on July 18 said its quarterly earnings were down 5 percent from a year earlier. Part of the slowdown stemmed from the interest-rate environment. As the spread between short-term and long-term rates has narrowed, it has gotten harder for banks to make money by the common technique of "borrowing short and lending long."

But other areas of flat revenue growth also appeared, in credit cards, consumer finance and bonds.

Mr. Prince says Citigroup will continue to expand operations in foreign countries, which already grow at a rate greater than 20 percent. He has said that U.S. operations, which still make up the biggest share of Citigroup, will experience "organic growth."

Some observers of the firm have their doubts. "Unlike in the past, it can't acquire its way out of the growth slowdown," says Guy Moszkowski, a Merrill Lynch & Co., analyst and former Citigroup employee who downgraded the stock to neutral from buy after the earnings report. He says that even if it didn't face the Fed's deal ban, Citigroup would be hobbled in doing takeovers by not having a highly valued stock. Citigroup stock has lagged behind the overall market and other big banks.

In a sign of Mr. Prince's different approach to Citigroup's business, when the firm recently sold Travelers Life & Annuity, he had Citigroup's investment bankers handle the sale. While executives agreed the sale made sense because of the business's relatively low returns, some were miffed they had no role in the deal. Under Mr. Weill, corporate executives executed transactions without investment-banking help, even the giant $83 billion Travelers-Citicorp merger of 1998.

Messrs. Prince and Weill also have many stylistic differences. While Mr. Weill relished eating and drinking with his management team, Mr. Prince usually works through lunch alone in his office. At the company's retreat in upstate New York, Mr. Weill forced his executives to bond by spending nights away from families as they watched the sole television set together in the fireplace room. Mr. Prince installed TV sets in all the guest rooms, and himself goes home for the night at management-strategy sessions.

Mr. Prince's legal and negotiating skills proved valuable to Citigroup as he took over. He immediately sought to settle the regulatory and financial scandals. While critics questioned whether he was acting too soon, his strategy proved shrewd. For example, Citigroup settled claims concerning its WorldCom underwriting for $1.4 billion in 2004. Other financial institutions didn't settle until this year, most for tougher penalties.

As CEO, Mr. Prince has hired more lawyers. A new vice chairman concentrating on merger activity, J. Michael Schell, came from Skadden, Arps, Slate, Meagher & Flom. A new chief administrative officer, Lewis B. Kaden, came from Davis Polk & Wardwell. Another new vice chairman, Stephen Volk, who focuses on corporate banking, is also a lawyer but came to Citigroup by way of Credit Suisse Group. Mr. Moszkowski, the analyst, says, "A legal mindset seems to dominate the company now."

To appease regulators, Citigroup barred its consumer-loan division, CitiFinancial, from making risky zero-down mortgage loans and set new rules for selling borrowers credit insurance. The FTC had sued Associates, a lender acquired by CitiFinancial, alleging deceptive practices that induced people to refinance debt into loans carrying high interest rates and fees and to buy costly credit insurance. Citigroup agreed to pay $215 million to settle the charges in 2002.

Mr. Prince says 90 percent of Citigroup employees support his renewed focus on ethics, as shown by internal polling. "The strengthening fabric of the place has been very positive," he says. "It gets us right now into 2006, to think of growth after a period of reflection, not introspection. Now we're ready to grow."

Some inside Citigroup worry the company is growing too cautious. In a meeting last month to review sales of certain financial products, one presentation showed how the introduction of new products to investors was slowed by requirements that they be approved by committees Mr. Prince established.

The increasing role of legal and other nonbusiness staff frustrated Ms. Magner, the global consumer-banking head, who also was distressed about the planned departure of her boss, Mr. Willumstad. Citigroup wouldn't provide any comment by Ms. Magner or Mr. Willumstad for this story, a spokeswoman said.

While recuperating from an accident in which she was struck by a Manhattan taxi this spring, she had a lot of time to think about her future. Then when Mr. Prince visited her at home two weeks ago, he told her he wanted to reorganize the consumer-banking business. Ms. Magner disagreed with his plan to split it between North American and international operations for greater "customer focus."

She also raised a more basic question. "If I'm the CEO of the consumer business, I should make the decision on how it's organized," she told him, according to someone familiar with the conversation. After several more talks, in which Mr. Prince stuck to his plan, Ms. Magner decided to resign. Earlier, some other managers just below the top tier also left, including two of the mortgage unit's most senior managers.

As chairman, Mr. Weill hasn't much enjoyed his limited role of meeting important customers, say friends and colleagues. He told Mr. Prince he was bored. Mr. Weill hatched the idea of starting a private-equity fund and told the board he wanted out of his contract as chairman, which runs through next spring's annual meeting.

Directors balked, telling him he couldn't do it unless he gave up his lifetime perks of corporate jets and security detail, according to people familiar with the situation. They say Mr. Prince, caught between the wishes of his mentor Mr. Weill and his directors, tried to stay out of the negotiations.

As the issue was about to come before the board last month, Mr. Weill backed down, saying he would stay as chairman until the next annual meeting. (His contract also calls for him to provide advice exclusively to Citigroup for 10 years, which he intends to do.) Mr. Weill was flabbergasted at the board's reaction to his request, he told friends and colleagues. But the directors were taking no chances, after controversies raised by lucrative exit deals at Morgan Stanley, General Electric Co. and other companies in the past few years.

The negative publicity embarrassed Mr. Weill and Citigroup at a sensitive time. Mr. Weill sent a companywide email saying he would never act "contrary to the company's interests" and that his commitment to Citigroup "remains as strong as ever." He added: "I fully support Chuck and his leadership, as well as the direction in which he is taking the organization."