Sandy Weill, chairman of Salomon Smith Barney's parent Citigroup, acknowledged that his firm may have engaged in some inappropriate behavior during the bull market and said that Citigroup would have to make "amends" to regain respect. Weill made his remarks at Merrill Lynch's annual banking conference last Friday in New York.
"We are now paying the price," Weill said. "As we look back, certain actions that we did during the period look to be inappropriate." But Weill went on to defend the firm, telling the assembled analysts and investors, "Nothing has come to anybody's attention that we have done anything illegal. We are not going to sit back and be a pincushion.'' On Monday, Weill ousted Michael Carpenter, head of Salomon Smith Barney's investment banking unit.
Ironically, Weill delivered his defense the day it was reported that Citigroup had agreed to pay a $200 million fine to the Federal Trade Commission for "predatory lending." Citigroup's Associates First Capital Corp. unit was accused of charging high interest rates and fees for loans to people with low-incomes and poor credit records.
That predatory lending announcement comes at an embarrassing time for Citigroup. Citigroup executives are now being investigated by Congress and regulators investigating whether they and its Salomon Smith Barney unit misled investors with biased stock research, illegally doled out sought-after IPO shares to corporate executives to win more investment banking business and conspired to help Enron hide debt.
Weill's speech was apparently intended to calm investors as Citigroup stock had plummeted by around one-third this year.
"This has been a lousy period to go through," Weill said. "We are here for the long run. We are not chicken."
Citigroup's stock may continue to be under pressure, as is the financial services sector in general. Analysts have been trying to quantify how much money the various brokerages could be liable for their individual roles in the Enron, WorldCom and various other scandals now plaguing Wall Street. Michael Mayo, an analyst at Prudential, said Citigroup might have to pay as much as $10 billion. Mayo has put a sell rating on the stock.
Documents released last week by Congressman Michael Oxley, chairman of the House Financial Services Committee, show Citigroup's investment banking clients received coveted shares in IPOs as the market surged. The documents revealed that former WorldCom Chief Executive Bernard Ebbers earned a profit of $10 million on stock made available to him by Salomon Smith Barney.