NEW YORK, Oct 30: Citigroup, caught in an industry-wide stock analysis scandal, announced on Wednesday it will set up a new unit to drive a wedge between stock analysts and investment bankers.
The world’s biggest bank said it wanted to restore wounded confidence among investors.
Citigroup and other financial powerhouses on Wall Street are accused of giving glowing analytical reports about weak companies in order to secure the firms’ investment banking business.
Small investors invested vast sums in the companies, relying on the misleading advice.
Under the new structure, Citigroup set up a separate business unit, to be known as Smith Barney.
Smith Barney would include only equity research and private client brokerage operations, Citigroup said in a statement.
Citigroup said it had made 37-year-old Sallie Krawcheck the new chairman and chief executive of Smith Barney. Krawcheck, who has a reputation for being fiercely independent, was formerly head of the research firm Sanford C Bernstein.
“This organizational change, with Sallie at the helm, is a giant step forward for Citigroup’s continuing effort to rebuild investor confidence and provide our clients with the highest quality service,” Citigroup chairman and chief executive Sanford Weill said.
“Over the last several weeks, we have been working closely with our regulators and have been considering a number of ways to address the issues challenging the industry,” he said.
“Our new structure is consistent with the goal of assuring the impartiality of research, which we share with our regulators. Our constructive conversations with regulators will continue and we will quickly implement any additional changes that are part of the revised regulatory framework.”
The new unit would include the global private client group, with more than 12,500 financial consultants, as well as global equity research.
The National Association of Securities Dealers last month fined Citigroup unit Salomon Smith Barney five million dollars for issuing misleading research reports on a failed telecom firm, Winstar.
The US industry’s self-regulatory body also said it had filed a complaint alleging similar actions by Jack Grubman, formerly the top telecom analyst at the brokerage, and his assistant, Christine Gochuico.
Grubman and Salomon Smith Barney are facing a barrage of similar allegations from private investors, lawmakers, and New York attorney general Eliot Spitzer.—AFP