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Shifts management { September 9 2002 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A54838-2002Sep8.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A54838-2002Sep8.html
Citigroup Shifts Management
Investment Unit Shake-Up Comes Amid Probes, Falling Stock
By Ben White
Washington Post Staff Writer
Monday, September 9, 2002; Page A04
NEW YORK, Sept. 8 -- Facing multiple investigations and a tumbling stock price, Citigroup Inc. today replaced the head of its global corporate and investment bank, tapping chief operating officer Charles Prince to take over for Michael Carpenter, who will move to a lower-profile position.
The announcement follows a drop in Citigroup's stock price from a 12-month high of $52.20 to $30.28 as of Friday. It also comes as state, federal and industry investigators probe how the company's brokerage and investment banking unit, Salomon Smith Barney Inc., operated during the late-1990s boom in technology and telecommunications stocks.
Citigroup has been in talks with the Federal Trade Commission to settle a probe into alleged predatory lending practices. Investigators also have been looking into loans the bank made to Enron Corp.
In an interview today, Citigroup chief executive Sanford I. Weill acknowledged the toll the probes have taken on his firm. "The investigations have had a very big impact on the morale of our 270,000 workers and on our shareholders and I think that it is incredibly important that we understand all the issues and become a leader in making changes," he said.
Prince, 52, said he envisioned making significant alterations to the way the investment bank operates. "The whole industry needs to change," he said. "Mike Carpenter has already made some very important changes and we are going to be leaders in making more." Carpenter will become head of Citigroup's global proprietary investment group, which manages about $100 billion in assets.
The investigations at Citigroup are on a number of fronts. Congress and the New York State attorney general's office have been looking into whether former Salomon Smith Barney telecom analyst Jack Grubman wrote overly positive reports on troubled firms to generate investment banking business for Salomon during the boom years, possibly misleading investors. Grubman was quietly pushed out of the firm last month, leaving with a severance package worth more than $30 million.
The House Financial Services Committee last month released documents showing that Salomon awarded hard-to-get initial public offering shares to Bernard Ebbers, helping the former WorldCom Inc. chief executive make $11 million in profit. Salomon officials have said the shares were awarded because Ebbers was a good brokerage client, not because of the millions in investment banking fees WorldCom paid the firm.
Citigroup's board approved the management shake-up today.
In addition to the probes, Citigroup is the target of multiple lawsuits. All the bad news led Prudential Securities analyst Michael Mayo last week to urge investors to dump Citigroup shares, leading to a major sell-off.
Nonetheless, former Treasury secretary Robert Rubin, who is now a Citigroup director, said the firm was well positioned.
"This business model and the way it has been executed . . . has been very successful," Rubin said, while acknowledging "individual, specific instance of activities that are not the way business should be done. . . . There are industry practices that are changing and should change," he said. Officials in the New York attorney general's office and the House Financial Services Committee could not be reached for comment tonight.
© 2002 The Washington Post Company
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