Does the Rot on Wall Street Reach Right to the Top?
By GRETCHEN MORGENSON
s the latest in a long line of Wall Street morality plays, the one
involving Sanford I. Weill, the chairman of Citigroup, and Jack B. Grubman,
his firm's former star telecommunications analyst, is unfolding in
depressingly familiar fashion. But it differs too from some other dramas
involving brokerage firm titans: thousands of individual investors lost
millions of dollars because of what appear to have been self-interested
actions by Mr. Grubman and Mr. Weill.
The story so far: in early 1999 Mr. Weill asked Mr. Grubman, a man whose
job it is to monitor by the minute what is happening at telecom companies,
to "take a fresh look" at AT&T. Mr. Grubman, who had been negative on the
stock, coincidentally upgraded it to a buy in November 1999. A few months
later, Mr. Weill's firm helped AT& T sell shares in its wireless division
to investors, reaping bountiful fees. And Mr. Grubman got help from Mr.
Weill securing spots in a prestigious nursery school for his kids.
In October 2000, Mr. Grubman downgraded the shares again after the stock
had lost 50 percent of its value.
Recall past Wall Street shows. The infractions and hubris of Michael Milken
at Drexel Burnham Lambert in the 1980's did not wipe out armies of small
investors. And individual investors were largely unaffected by the attempt
of a Salomon Brothers trader to corner the market in United States Treasury
securities, a power play that cost John H. Gutfreund, the firm's chairman,
his job in 1991.
Mr. Weill said last week that he did not mean to pressure Mr. Grubman into
changing his view on AT& T, and that he assumed Mr. Grubman would rate the
stock on its merits. But his argument is unpersuasive.
The fact is, Mr. Weill's request of Mr. Grubman draws him into the circle
of people that investors can consider at least partly responsible for
losses they incurred by following the analyst's advice. Between his upgrade
of AT&T when the stock was at $57.43, and his downgrade, at $28.88, some
$80 billion in market value vanished.
To be sure, Mr. Grubman was not the only analyst who was bullish on AT&T in
1999. This column quoted one in May 1999 who incorrectly projected a
positive future for the company and its shareholders. What a bad call of
mine that column was!
It may not come as a surprise to people on Wall Street or those accustomed
to its ways, that Mr. Weill inserted himself into the research process
relating to AT&T. But that doesn't mean it looks good. In fact, it looks
awful. Sufficiently so that some large investors have dumped Citigroup
shares as a result.
BILL DIERKER, vice president of equity securities at Nationwide Insurance
in Columbus, Ohio, said he had sold the last of his company's roughly 1.5
million Citigroup shares last Thursday. That was the day after Mr. Weill
owned up to contacting Mr. Grubman about his AT&T rating.
Mr. Dierker's reason? "The quality of management is a big variable in my
decision-making process and Citigroup went from having a reasonable score
to having a low score," he said. "For investors, it used to be we didn't
know what we didn't know. Now, I think there's a sense that there's a lot
we don't know."
Mr. Weill's position at the top of Citigroup may yet be secure. But his
legacy as an impressive manager who has created significant shareholder
value has been severely damaged.
Bill Fleckenstein, president of Fleckenstein Capital in Seattle, said the
incident showed "that it wasn't just the analysts and the corporate finance
guys on Wall Street who would do whatever it took to make a buck. The
C.E.O.'s did, too." But this was standard practice on Wall Street in the
90's, he noted. "The only reason we get to know about this is there was a
paper trail," he said. And a doozy of a trail at that.
Why is it so hard for smart people who have been around awhile Mr. Weill
and Mr. Grubman qualify on both counts to see that if the road to instant
gratification requires taking a wrong moral turn, such a turn is
inadvisable? I really and truly want to know.
http://www.nytimes.com/2002/11/17/business/yourmoney/17WATC.html?ex=1038114000&en=65a922528f327c59&ei=5062&partner=GOOGLE
Wild guess...Citigroup-CIA.90's BCCI-CIA.80's NUGAN HAND-CIA.70's.
Exclusive little creches cost...SEE...
http://www.iht.com/articles/77186.html
