[PEN-L:30039] citigroup

["Ian Murray" <seamus2001@xxxxxxxxx>]

[no mention of it's Latin America presence and money laundering.........]

Dark heart of Wall Street wrongs
Citigroup, the US's largest financial firm, is the target of a witch hunt.
Others are likely to suffer a similar fate

Jill Treanor
Thursday September 5, 2002
The Guardian

Citigroup is being hit hard by the crisis in capitalism. With 200m customers in
six continents and 270,000 employees, the United States' largest financial
group - embracing Citibank and Diners Club - is fast becoming the symbol of
everything that has gone wrong in Wall Street.

Created in a blockbuster merger four years ago, the company is at the heart of
the investigations into the collapse of Enron and WorldCom.

Its reputation is on the line, demonstrated by the enormous loss of value in its
share price, which has fallen 40% this year alone amid fears about the group's
role in the scandals that are gripping corporate America. On top of everything
else, it has now suffered the unthinkable: an analyst has broken an unwritten
rule on Wall Street and dared to recommend to investors that they sell the
shares.

The heyday of the 1990s boom has finally caught up with the firm that is at the
heart of American capitalism. Every day seems to bring a new allegation about
its conduct in the dotcom craze.

The alleged relationship between Jack Grubman - its star telecommunications
analyst - and WorldCom, America's biggest bankruptcy after the discovery of a
$7bn accounting fraud, is mesmerising the financial community.

Even Sandy Weill, the Wall Street veteran who created Citigroup to much
applause, is being drawn into the ever-widening investigations by American
financial regulators looking for scalps as part of their clean-up campaign.

Mr Weill has found himself in the spotlight over suggestions that he exerted
pressure on Mr Grubman to make positive recommendations on stocks in order that
Citigroup could win lucrative business from clients. Mr Weill, a member of the
Wall Street establishment, has also seen attention focused on his position on
the board of huge telecoms group AT&T, a company which gave Citigroup business
during the dotcom boom.

There are also revelations about the money made by company executives such as
Bernie Ebbers, the disgraced chief of WorldCom, from shares awarded to them in
stock market flotations that were conducted by Citigroup.

The allegations - which are still emerging - are strongly refuted by the firm
that has tried to beat the best of America's financial players at their own
game. The merger was the biggest of its time when it was announced in 1998, a
$140bn tie-up between Citicorp - already a huge banking group - and Travelers,
an insurance company that had been hammered together by the deal-making Mr Weill
over the previous decade.

The transaction changed the model of financial firms, uniting banking with
insurance on a hitherto unseen scale. No financial firm could surpass its
ambition and, four years on, only Mizuho of Japan is larger in assets terms. One
of the crucial components of the legendary transaction was Salomon Brothers, the
high octane trading outfit where the "big swinging dick" - a title given to
glorify the most successful of the wheeler dealers - could be found.

The culture of Salomon Brothers, which had been swallowed whole by Travelers the
year before its marriage with Citicorp, is forever immortalised in an
unflattering book by Michael Lewis, Liar's Poker.

This is the firm where "one hand, one million dollars, no tears" summed up the
greed and avarice that ruled Wall Street in the 1980s. These were the words
reputedly used by the then chairman of Salomon, John Gutfreund, to goad the
biggest wheeler dealer, John Meriwether, in their version of liars poker - which
to ordinary Americans was a daredevil game in which players guess the serial
numbers on dollar bills in return for the note.

Both men are long gone from the firm: Mr Meriwether quit to set up the Long-Term
Capital Management hedge fund that caused near chaos during the 1998 emerging
markets crash and had to bailed out by Wall Street; Mr Gutfreund became one of
the casualties of the treasury bond scandal that gripped Salomon Brothers 10
years ago and again raised questions about the financial sector's culture.

An arcane business to some, the treasury bond market is crucial to the
functioning of the US economy, setting the rate at which the country borrows
money to keep capitalism rolling.

A decade ago the tacit acknowledgement by Salomon that it had in effect rigged
the bond market was the equivalent of the scandal that is now emerging. It
rocked the credibility of the financial markets just as the corporate accounting
scandalis doing now.

That Salomon is again at the heart of the controversy - and any wrongdoing is
yet to be proven - is perhaps not surprising, given its size and scale of
activities. But the reasons are very different. Under the ownership of
Citigroup, Salomon has pulled out of the more risky, controversial trading
areas.

This time it is not about trading but about how Salomon behaved during the
dotcom boom, notably the relationship between its analysts, such as Mr Grubman,
and the clients of the investment bank, including WorldCom.

Some sector watchers believe the tight focus on the firm is unwaranted. Ray
Soifer, who runs his own consultancy firm, suspects it may also prove to be
unfair. "The practice of analysts being involved in investment banking does not
appear to have been confined to Salomon," Mr Soifer said. "I have a feeling that
whatever happened at Citigroup was not unique," he said.

None of the big firms on Wall Street are immune from the investigations set in
motion by Eliot Spitzer - the high-profile New York attorney general - and other
regulators such as the powerful securities and exchange commission, which
oversees financial markets; not to mention the politicians on Capitol Hill.

Merrill Lynch, for instance, has been embarrassed by internal emails sent by its
star dotcom analyst, Henry Blodget, who accepted redundancy last year. He
famously described as "crap" in private the stocks he was publically
recommending as "buys".

But it is Citigroup that is now at the centre of the Wall Street witch hunt.

Mike Mayo, the analyst at Prudential Financial who has broken ranks to
recommending selling the shares, also acknowledges that Citigroup is not alone
in facing up to the investigations into Enron and general corporate governance
issues in the financial sector.

But in his view, "Citigroup stands out relatively more for having all of these
issues under one roof."

According to Mr Mayo, any successes achieved through lawsuits mounted for
damages against Enron could cost Citigroup alone as much as $10bn. On top of
that could come any fines that might be levied by the regulators.

The financial muscle and size that Citigroup has used so effectively to its
advantage in the past may prove to be its biggest handicap in the months to
come - after all, the bigger the company, the greater its ability to pay.