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Wednesday, 13 November, 2002, 23:40 GMT

Citigroup allegations continue

Citigroup, the world's biggest bank, has once again become embroiled in allegations that its analysts amended research to influence stock market research and mislead investors.

The current question mark follow suggestions that Citigroup's chief executive Sanford Weill urged former analyst Jack Grubman to 'review' stock recommendations on cable group AT&T as part of a power struggle.

A report in the Wall Street Journal centred on emails written by the fallen star analyst in 1999.

These boasted that Mr Weill had pushed Mr Grubman to re-examine his recommendation on AT&T as part of plans to gain the support of AT&T's chief executive Michael Armstrong.

The move was reportedly aimed at discrediting, or "nuking" according to Grubman's emails, Citigroup's former joint chief executive John Reed.

Mr Reed subsequently resigned from the group.

Backtracking


" Regrettably, I invented a story in an effort to inflate my professional importance "

Jack Grubman

The move was made all the more questionable by the fact that Mr Weill is also a member of AT&T's board, while Mr Armstrong is on the Citigroup board of directors.

Following the newspaper report, Mr Weill admitted he had told the former analyst to "take a fresh look" at his rating, but denied requesting him to upgrade it.

Nonetheless, this is the first time that the chief executive of one of the US's most influential companies has admitted interfering with analysts' affairs.

Mr Grubman meanwhile has made a humiliating about-turn on his position.

He said in a statement that the emails, bragging that Mr Weil had urged him to increase his recommendation, were "fabrications" based on "zero reality".

Nonetheless, the issue unsettled investors in late trading on Wall Street with some market watchers suggesting the confession was a move to protect Mr Grubman's former boss.

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

What happened?

Mr Grubman, whilst employed at Citigroup's Salomon Smith Barney, raised his recommendation on AT&T in autumn 1999, advising investors to buy the stock.

At the time, Mr Grubman was one of the leading telecommunications analysts, whose recommendations could lead to vast swings in value of a particular stock.

The move has now become part of a widespread investigation into whether stock market ratings were connected to moves to win banking business.

Shortly after the upgrade, Salomon Smith Barney unit was chosen as the manager for a spin-off of AT&T. The role earned the group $45m in banking fees.

A few months later, Mr Grubman returned to his original neutral recommendation of "hold".


" I have said a number of inappropriate, even silly, things "

Jack Grubman

Mr Grubman had bragged in emails to colleagues that the decision to lift his stance because Mr Weill wanted to gain support from Mr Armstrong.

He is now denying this.

"I have said a number of inappropriate, even silly, things in a few private emails that have been made public.

"The contents of these particular emails, while personally embarrassing, are completely baseless."

Latest blow

The latest allegations join a long list.

Mr Grubman has been named in 62 complaints over research that was not based on facts.

He was forced to step down in August from his analyst role, after mounting controversy over his selection of stocks.

In July, Mr Grubman was questioned by a congressional committee investigating the collapse of WorldCom.

In September, Salomon Smith Barney was fined $5m for misleading research on telecoms group Winstar Communications.

Mr Grubman had strongly recommended the stock just a few weeks before it filed for bankruptcy in 2001.


Related to this story:
Citigroup separates research arm (30 Oct 02 | Business) Banking giants in earnings boost (15 Oct 02 | Business) Citigroup pays record compensation (19 Sep 02 | Business) Scandal-hit Salomon ditches chief (09 Sep 02 | Business) Banks set out to soothe nerves (26 Jul 02 | Business)


Internet links: Citigroup | Salomon Smith Barney
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