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While Denying Wrongdoing, Sandy Apologizes For Enron Relationship

Salomon Smith Barney, Sandy Weill, Citigroup, apology, Enron

Salomon Smith Barney’s Sandy Weill told brokers and other employees in a letter that he “regrets” the company’s business relationship with Enron that led to criticism and a decline in the firm’s share price.

But Weill, chairman of Smith Barney’s parent Citigroup, also said in the letter that “our activities with Enron were legal, met accounting standards, and reflected industry practices.”

Yet, Weill still apologized, saying, ``I feel badly and truly regret the pain that has been caused.''

He also told employees that the company will look at client transactions in an “entirely different light'', taking into account investor demands for more disclosure.

He also said the company will be quick to punish employees who do “anything wrong" or fail "to abide by our professional standards."

Citigroup shares tumbled 41 percent this year, erasing $107 billion in market value, and a lot of it had to do with Enron's bankruptcy in December.

The SEC is also investigating whether Smith Barney’s parent helped Enron hide debt, according to reports.

Weill says the decline in the company’s shares is unwarranted, noting, ``The recent decline in our stock price is completely disconnected from the fundamental strengths of our company.''

Weill’s letter:

To: All Employees
From: Sandy Weill
Date: July 25, 2002
Re: Recent Events

Ours is a great company that day-in and day-out plays an important role in the lives of hundreds of millions of people. We have earned this role based on our integrity, the quality of our products and services and the quality of our people. In the last few days, our company has been severely criticized for past activities in our Corporate and Investment Bank. I feel badly and I truly regret the pain that has been caused.

From everything we know, our activities with Enron were legal, met accounting standards, and reflected industry practices - and our people, relying on the advice of independent legal and accounting experts, believed they were doing the right thing.

Now, the industry's standards are changing rapidly. And it is our responsibility as the preeminent global financial services firm to take the lead in ensuring that our business practices reflect these new higher standards going forward. Today's investors are demanding greater transparency in financial disclosure and therefore we are responding accordingly. By today's new standards, and with the benefit of hindsight, we will evaluate client transactions in an entirely different light than in the past.

Throughout our organization, we are reviewing - and will continue to review - our business practices to ensure they adhere to these new standards. If we find that anyone in our company has done anything wrong or fails to abide by our professional standards, we will take all appropriate actions swiftly.

Recent events have pointed out two areas where conflicts of interest need to be managed better. First, we are changing the way we do research and taking the lead to build stronger walls to separate research from investment banking and managing the conflicts that may arise from time to time. By being the first firm to voluntarily embrace the Spitzer principles, we have precluded investment bankers from having any say in analyst compensation and previewing reports. We also called on regulators to pass rules that would preclude analysts from going on investment banking pitches and road shows. And we are taking immediate steps to adopt the SEC's new proposal for analysts to certify that the views expressed in their research accurately reflect their personal views and that they have not been compensated, directly or indirectly, for expressing a specific recommendation.

Second, we have already taken the steps necessary to avoid possible conflicts of interest by not using our auditors to do consulting work. We will only use our outside auditors to do audit and tax-related work. Further, I support the effort to create a strong independent authority to establish and enforce accounting standards. We need, in effect, an SEC for the accounting industry. We have strongly supported the enactment of these legislative proposals as soon as possible.

We continue to strive to help investors understand our company better. Last year, we were particularly proud when, for the second year in a row, the Financial Services Analyst Association said we had the "best disclosure" in our industry based on the quality and comprehensiveness of the information we provide investors. And last quarter we took steps to further improve upon our disclosure. We adopted changes that focus our shareholders on basic GAAP results and we have publicly called for all companies to be required to properly and fully account for all their revenues and expenses rather than producing pro forma or EBITDA as their primary income measure. If companies choose to supplement that reporting by showing pro-forma numbers, or cash-flow, that's fine. But we need to have one standard for all. I think that this will lessen the room for interpretation and minimize the leeway companies have for creative accounting.

I agree that CEOs should be individually accountable for these financial disclosures and am ready to sign and certify our company's financial statements.

The recent decline in our stock price is completely disconnected from the fundamental strengths of our company. We earned a record $4.08 billion the past three months alone. We have $92.5 billion in total equity and $10.5 billion in credit reserves. The issues raised relate to a small segment of the corporate and investment bank and need to be put in the context of the diversity and breadth of Citigroup's operations. In the past twelve months, we received ratings upgrades from major rating agencies and are rated one notch below "AAA" or equivalent currently. And having had our financial statements reviewed by the SEC, we are prepared to mail our proxy offer to shareholders of Golden State Bancorp immediately. In response to the recent market activity, we have significantly accelerated the buy-back of Citigroup stock purchasing nearly $2 billion of our stock in July alone.

Together, we have built a great company, one that I am proud to be part of. The steps we are taking to further improve standards throughout our company only enhance my confidence in our great future.

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