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Sandy Squares Up To The Bus Question

Nov 24, 2002 | FT.COM Citigroup is haunted by what could be called the "bus question". As company insiders typically state the issue, it boils down to this: What would happen if Sandy Weill, the bank's chairman and chief executive, was hit by a bus?

The anxiety derives from Mr Weill's age and his singularity. At 69, Mr Weill is past the retirement age of many companies and he has yet to groom an obvious successor.

In recent weeks, the bus question has been asked more frequently because investors have grown fearful that the metaphorical vehicle haunting Citigroup has become reality in human form - that of Eliot Spitzer, the New York attorney-general.

Mr Spitzer's investigation of conflicts of interest at Citigroup's Salomon Smith Barney investment bank is looking into whether Mr Weill inappropriately influenced his former telecoms analyst, Jack Grubman.

Mr Spitzer has yet to run down Mr Weill and there is no guarantee he will. But the investigation has focused attention on whether the biggest US bank is ready for Mr Weill's departure -whenever that occurs.

It is often said Mr Weill has made Citigroup in his own image and that has never been more true than during the research furore. Of the last seven news releases posted on Citigroup's internet page, four offer rebuttals to newspaper stories about Mr Weill. The man and the bank seem inseparable.

People familiar with Citigroup say its board continues to support Mr Weill and even critics of the company see little sign of investors clamouring for a replacement. Citigroup's stock has rallied 53 per cent since July.

That means Mr Weill is unlikely to go without a push from Mr Spitzer. People who know Mr Weill say he grows more focused in a crisis and some say his appetite for his job has been heightened by his desire to win the battle with regulators.

However, the betting on Wall Street is that Citigroup's board will have to pay more attention to succession, given the uncertainty about Mr Weill.

"The concern about the management of Citigroup clearly raises issues about succession," says Henry McVey, Morgan Stanley analyst. "My sense is that, before succession becomes an issue, Sandy Weill will want to come out on top as a winner."

Mr Weill ousted his last heir apparent, Jamie Dimon, only weeks after the company was formed in 1998 by the merger of Travelers and Citicorp. Since then, several key executives have been demoted or have left.

Citigroup's position is that Mr Weill has resisted designating a successor to avoid losing talent. It says Mr Weill meets a board subcommittee to discuss succession and has expanded the company's management committee to give senior executives broader experience.

"The board has an ongoing deliberative succession process in place and nothing has occurred to change or accelerate that process," said Chuck Prince, Citigroup's corporate secretary and its recently installed investment banking chief.

In an emergency, Robert Rubin, a member of the office of the chairman, could take over, but he has said he does not want to be chief executive. Most speculation about internal successors to Mr Weill points to leaders of Citigroup's business units.

Mr McVey said if Mr Prince succeeded in his investment banking role, he could become first in line. But Mr McVey's scenario implies Citigroup will have time to work on succession and that raises the question of what Mr Spitzer will do.

d3 Mr Weill has acknowledged that in late 1998 or early 1999 he asked Mr Grubman to take a "fresh look" at AT&T, a company the analyst had previously disparaged. At that time, Mr Weill was an AT&T director and AT&T's chairman and chief executive, Michael Armstrong, served on the Citigroup board.

Mr Grubman subsequently raised eyebrows on Wall Street by upgrading AT&T to a "buy" in November 1999, shortly before Salomon won a lucrative underwriting assignment from the telecoms company. Mr Spitzer's inquiry initially focused on whether Mr Grubman changed his view to win the underwriting work.

Mr Spitzer's probe has since been expanded to look at more sensational allegations that stem from e-mails sent by Mr Grubman. They suggest that Mr Grubman changed his mind to help Mr Weill win a power struggle at Citigroup and to gain Mr Weill's assistance in getting Mr Grubman's children into nursery school. Mr Grubman has since said he made it all up. Whether he really did, will be Mr Spitzer's call.

In the meantime, Mr Weill is training like a prize fighter. He says he will give up Martinis, bread and desserts until the regulators conclude their investigations. Working out six times a week, he has shed 27 pounds.

Whatever else Mr Spitzer accomplishes, he is getting Mr Weill into shape.

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