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Citigroup Leaned On Analyst

CEO Asked Employee For

Nov 14, 2002 | Bloomberg News

Citigroup Inc. chairman Sanford Weill, whose firm is in talks to settle investigations of conflicts of interest, said he told Jack Grubman to "take a fresh look" at the analyst's rating on AT&T Corp. in 1999.

Weill, an AT&T board member until last month, said in an E-mail to staff that he didn't pressure Grubman into recommending AT&T shares to help Citigroup win investment-banking fees from the phone firm.

He urged Grubman to look at AT&T because the company had been through a "dramatic transformation," Weill said. Grubman raised his rating after hearing from Weill.

Grubman said in a statement that he lied when he wrote in an E-mail that Weill wanted him to review his rating to win backing from AT&T chief executive Michael Armstrong in a boardroom battle. Armstrong, a Citigroup director, supported Weill in ousting John Reed as co-chairman of the biggest financial-services company.

"Clearly, Mr. Weill wanted a higher rating than Grubman had on the stock," said Jeffrey Evans, head of the New York Society of Security Analysts, a trade group. "It's not as direct as saying: 'Upgrade the stock,' but it's pressure. No one should be applying pressure."

Weill's statement for the first time that he wanted Grubman to review his rating may pressure Citigroup's board to push its 69- year-old chairman to name a successor, some investors said.

The Grubman E-mail also shows why securities firms are eager to resolve the conflicts-of-interest investigation by New York's attorney-general and other regulators, investors said.

Settling the investigation would end regulators' disclosure of internal documents that have embarrassed executives and depressed shares of Wall St. firms.

Citigroup's stock dropped $1.39, or 3.8 per cent, to $35 in New York trading. The company and Grubman face 62 lawsuits over his recommendations of shares that later plunged, Citigroup said.

He recommended shares of WorldCom Inc., Winstar Communications Inc. and other telecommunications companies that were Citigroup banking clients and later filed for bankruptcy protection.

Grubman, who earned $20 million a year and was the most influential telecom analyst in the late 1990s, said yesterday he never wrote research reports on AT&T to win banking business or influence Armstrong. He issued the statement after the Wall Street Journal reported on his E-mail about the struggle between Weill and Reed.

"Regrettably, I invented a story in an effort to inflate my professional importance and make an impression on a colleague and a friend," he said in the statement.

Weill said in a memo issued by the firm: "I did suggest to Jack Grubman that he take a fresh look at AT&T in light of the dramatic transformation of the company and the industry. I always believed that Mr. Grubman would conduct his own research and reach independent conclusions that were entirely his own."

Previously, Weill had said he "never told any analyst what he or she had to write - and I never would."

The request to review a rating "does seem to be stretching the boundaries of appropriate behaviour," said Prudential Securities analyst Michael Mayo, who has a "sell" rating on Citigroup.

"You have one of the most powerful chief executives in the country asking one of over hundreds of analysts at the firm to take a fresh look."

Barclays Capital's head of credit research, Gary Jenkins, said he's never heard of a similar request at his firm.

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