Securities regulators plan to fine Citigroup $500 million and Credit Suisse First Boston $250 million Friday as negotiations to reach a global Wall Street reform settlement enter a final phase.
The penalties, the heaviest facing 12 of the nation’s top investment banks and brokerages, come after unprecedented state and federal probes into tainted Wall Street stock research and stock-offering practices. Investigators concluded that Citigroup’s Salomon Smith Barney unit and CSFB were the most aggressive wrong-doers before the collapse of the 1990s bull market cost investors billions of dollars.
Fines against Wall Street firms are expected to total more than $1.5 billion. The money is to be divided among state securities regulators that conducted the various investigations in the past several months.
Bear Stearns and US Bancorp Piper Jaffray are also scheduled to meet individually today with Securities and Exchange Commission enforcement chief Stephen Cutler at the New York Stock Exchange. People with knowledge of the matter say that both face fines in the $50 million to $100 million range, because of Piper’s relatively small size and Bear Stearns’ minimal retail investor base.
While some firms might put up a fight, senior executives at Citigroup and CSFB privately say that they are resigned to paying to close one of the most damaging chapters in Wall Street history.
Monday, Goldman Sachs, Merrill Lynch, Deutsche Bank and San Francisco’s Thomas Weisel Partners will learn how much regulators want them to pay. The others: UBS Warburg, Morgan Stanley, J.P. Morgan Chase and Lehman Bros. will be informed Tuesday. All are said to fall into the $50 million to $150 million range, depending on size and culpability.
Regulators, led by New York Attorney General Eliot Spitzer, still need to finalize reforms that will ensure small investors get untainted stock research and access to IPOs. A final settlement could be signed as early as mid-December. Although securities regulators say there could still be some lingering investigations surrounding IPO allocations, Wall Street firms hope a settlement will help restore their credibility.
Citigroup CEO Sandy Weill is likely to breathe the largest sigh of relief, after embarrassing public disclosures last week that suggested he prodded former star analyst Jack Grubman to upgrade his rating on AT&T. An internal e-mail and memo suggested Grubman upgraded his rating on AT&T three years ago to help Weill ingratiate himself with AT&T’s chairman, win banking business and defeat a corporate rival. In return, the documents suggest, Weill helped Grubman get his two children into a prestigious Manhattan nursery school. Both men deny the allegations.
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