Rewriting the Rule Book at Citi


For over six months, Citigroup has been besieged by investigations into research done at its Salomon Smith Barney investment bank. Citi took reform into its own hands on Oct. 30 when it said it would separate research from investment banking. Its analysts will be paired with SSB's 12,500 retail brokers, and the whole unit will be run by Sallie L. Krawcheck, until now the CEO of independent research shop Sanford C. Bernstein & Co. A former securities analyst, Krawcheck was known for her critical comments about Citi predecessor Travelers Group and the other financial giants she covered. BusinessWeek banking editor Heather Timmons spoke with Krawcheck and Citigroup CEO Sanford I. Weill about the new structure:

Q: How exactly is this new business model going to work?

Krawcheck: We'll get fee-based revenues from the private-client side and trading revenues and commissions from the private-client and institutional-investor side. The costs for research will come out of that. The business will stand alone as a profitable unit within Citigroup (C). But the real difference is that our research will have a client focus. The analysts are working for the private clients and the institutional investors, full stop.

Q: That will be a cultural shift for SSB's research unit. How will you do that?

Krawcheck: I think a mind shift is already taking place. The analyst community has been sullied by some of the things that happened during the bull market, but 99% of these folks are highly ethical individuals who have a great deal of responsibility to their clients.

Q: This plan goes further than the settlement being negotiated by the states and SEC. Will it supersede those talks?

Weill: What we've set up can, and will, accommodate and integrate any plan put out by the regulators. We understand the need for change, we understand the need to restore investor confidence, and we think we've been addressing that.

Q: There are still some big unknowns. Will analysts be allowed to do due diligence for IPO underwriting, for example?

Weill: We are willing to do anything that will be part of the industry settlement with the regulators, and that goes from zero interaction to some interaction. There is going to be major change in the way this business is conducted in the future, and we accept that, and we applaud that, because it is very important that people have confidence in this system. Our country is the best in the world, and we have to get it going again.

Q: For this division to have any integrity, Sallie, you are going to have to be comfortable turning to Sandy at some point and saying, "No, we're not going to do things that way." Are you?

Weill: She was telling me how to run this business before she even worked here.

Krawcheck: This is not an organization of yes-people. These are not easy personalities. There are vigorous debates that go on in here, and that's a very appealing quality to me. Sandy and I have had spats in the past, and we're going to have them going forward.

Weill: Uh huh.


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