Citigroup to separate stock research from investment banking operation

<br>NEW YORK (AP) _ Citigroup will separate stock research from its investment banking operation in a bid to placate securities regulators and the state attorney general, who are investigating conflicts

Wednesday, October 30th 2002, 12:00 am

By: News On 6

NEW YORK (AP) _ Citigroup will separate stock research from its investment banking operation in a bid to placate securities regulators and the state attorney general, who are investigating conflicts of interest in advice from analysts.

The new equity research and private banking business will be led by Sallie L. Krawcheck, 37, who is currently chairwoman and CEO of the independent research firm Sanford C. Bernstein, Citigroup said Wednesday in a news release.

``Sallie is a strong advocate for research quality and independence,'' said Sanford I. Weill, Citigroup chairman and CEO. ``This organizational change, with Sallie at the helm, is a giant step forward for Citigroup's continuing effort to rebuild investor confidence and provide our clients with the highest quality service.''

The unit will include more than 12,500 financial consultants and will operate under the Smith Barney name.

New York Attorney General Eliot Spitzer and the Securities and Exchange Commission have been investigating conflicts of interest and other abuses at several big investment firms. Spitzer has said the conflicts cost countless small investors millions of dollars, as they were advised to buy stocks that analysts privately derided.

In September, Citigroup paid $5 million to settle administrative charges by the National Association of Securities Dealers that a former star telecommunications analyst, Jack Grubman, misled investors on Winstar Communications. Citigroup, the country's biggest financial institution, neither admitted nor denied the charges. Grubman contends he has done nothing.

Meanwhile, the NASD and Spitzer also are looking into conflicts of interest in Citigroup's Salomon Smith Barney shop, including allegations researchers touted telecommunications stocks to help Citigroup get the companies' investment banking business.

In May, Merrill Lynch & Co., the nation's largest brokerage firm, agreed in a settlement with Spitzer's office to pay a $100 million fine and to separate its analysts from its lucrative investment-banking business.

Citigroup's announcement came on the day regulators and top brokerages had set as a deadline to resolve conflicts of interest in Wall Street stock ratings. Regulators and top brokerages discussed creating a separate research entity to be funded by the large investment banks last week. The parties have agreed to that general framework, The New York Times reported Wednesday.

That arrangement would avoid any conflict between a firm's researchers rating a stock and its investment banking executives seeking to lure that company's business.

``Our new structure is consistent with the goal of assuring the impartiality of research, which we share with our regulators,'' Weill said.

In a statement, Krawcheck said she hoped to make her division ``a model for the industry.''

``Delivering high quality, independent research is the right thing to do for our clients,'' she said.