August 06, 2008

BANKING DOSSIER: There goes Glass Steigel

Citi eyes shift to create single unit for analysts

By Francesco Guerrera in New York

Financial Times, August 6 2008 03:00

Citigroup is working on a plan that would shift its equity research operations into its institutional securities business, reversing a reform implemented earlier this decade amid regulatory scrutiny of Wall Street conflicts of interest.

Details of the overhaul, which could be announced in the coming weeks, were not yet finalised and could still change, people close to the situation said.

However, under the current plan, Citigroup would create one unit for analysts from across its sprawling operations in the hope of cutting costs and serving clients more efficiently.

The move would reverse a decision taken six years ago when Citi moved equity research from ts investment bank to its wealth management unit. At the time, Eliot Spitzer, then New York Attorney general, and other regulators were investigating whether Citi and other Wall Street groups had tried to win investment banking assignments by publishing overly rosy research.

Citi declined to comment.

The latest overhaul is part of efforts by Vikram Pandit, chief executive, to get Citi's disparate components to work better together while cutting inefficiencies and restoring the company financially. The merger of equity, fixed-income and economic research would enable Citi to cut costs by eliminating duplicate back office and other support functions, people close to the company said.

The return of equity research to the institutional securities division was considered under Mr Pandit's predecessor, Chuck Prince, but was opposed by some senior executives. They had argued that moving the operations back into the institutional business could rekindle fears over bankers' influence on research. However, people close to Citi say the rules imposed on research
since the 2002 global settlement between banks and US regulators make such fears unfounded.

They add that putting equity analysts back into the institutional business is logical because institutional clients pay for most of its research output.

Most of Citi's rivals have similar arrangements with "Chinese walls" that prevent bankers from talking to - or otherwise influencing - analysts on client issues.

The new unit is likely to report to Hamid Biglari, chief operating officer of the institutional securities business, who has no direct oversight of either the investment bank or capital markets unit.

Citi's equity analysts were moved to the Smith Barney wealth management unit in 2002, before the global settlement, which required Citi to pay $400m.

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