Until he is able to reach a settlement with the state attorney general, Citigroup chief executive Sanford I. Weill may have to watch helplessly as his company takes a public thrashing, industry experts said yesterday.
Attorney General Eliot Spitzer has been investigating Citigroup and Weill over allegations of questionable research practices at Citi’s Salomon Smith Barney brokerage that could be settled as early as December, a source said.
But until that happens, Weill and Citi will probably continue to see the company’s laundry aired in public. At the very least, it will be personally humiliating and financially painful if the stock sinks as a result.
“The whole thing is embarrassing to everyone that is involved,” said Charles Wendel, who heads Financial Institutions Consulting in Manhattan. “Basically, the name of Weill and Citigroup are being dragged down by something silly and demeaning.”
The latest round of e-mails now circulating suggest that Weill agreed to help get Jack Grubman’s twins into an elite Manhattan nursery school if the Salomon Smith Barney analyst inflated his stock rating on AT&T Corp.
The children were admitted to the 92nd Street Y around the same time Citigroup pledged a $1-million donation to the school, a report in The Wall Street Journal said. Spitzer is reportedly investigating the connection between the two.
A source said Citigroup could have to pay a fine of at least $200 million for analysts’ conflict of interests.
In a Jan. 13, 2001 e-mail, Grubman told Carol Cutler, an analyst at a money management firm, that he manipulated his rating of AT&T’s stock to help Weill, his boss, curry favor with C. Michael Armstrong, AT&T’s chief executive, and to gain Weill’s influence on behalf of his children.
Grubman wrote that he “used Sandy to get my kids in the 92nd Street Y pre-school [which is harder than Harvard] and Sandy needed Armstrong’s vote on our board to nuke Reed in showdown. Once the coast was clear for both of us [i.e., Sandy clear victor and my kids confirmed] I went back to my normal self” and lowered his rating on AT&T.
Armstrong sits on Citigroup’s board of directors. John Reed shared the chairmanship of Citigroup with Weill when the company was first created by the merger of Citicorp and Travelers in 2000. That same year, Reed retired.
Grubman, who had been bearish about AT&T, upgraded his rating on the company several months after Reed left.
Weill acknowledged last week in an memo to his senior management that he did “call the 92nd Street Y” to help Grubman and asked him to take “a fresh look” at AT&T, but argued that his intentions were honorable.
Aliz Freidman, director of communications at the school, said: “No child is guaranteed admission at the school.”
Despite the explanations, the damage to the company will be lingering, said Samuel Hayes, professor of investment banking at Harvard University. “This nursery school situation confirms the worst fears of inequities when it comes to education.”