Laughing All the Way From the Bank ---Citibank - Weill

["Miklos A. Vasarhelyi" <miklosv@andromeda.rutgers.edu>]

September 11, 2005

Laughing All the Way From the Bank

By
TIMOTHY L. O'BRIEN and JULIE CRESWELL

ADORNING a conference room wall on the third floor of

Citigroup's Manhattan headquarters is an enormous wooden plaque. It
bears a likeness of the company's chairman, Sanford I. Weill, and lists
every deal he engineered to create what is now the country's largest,
most profitable and most influential financial institution.

The inscription beneath his image reads: "The Man Who Shattered
Glass-Steagall." That is a reference to the Depression-era law that
hemmed in the size and powers of America's banks for several decades,
until the 1998 merger that formed Citigroup helped lead to its repeal,
ushering in a new age of boundless, hazardous, high-octane finance and
deal-making still struggling to sort itself out.

Down the hall from the conference room - and one floor removed from most
of the senior executives who run the company - Mr. Weill, 72, maintains
an office bedecked with photographs of family, presidents and foreign
potentates; he will occupy this space at least until he retires next
spring. 

Recently, Mr. Weill pondered an early exit from Citigroup to start a
private-equity fund, roiling the board and prompting yet another round of
speculation about turmoil at the bank, which has been whipsawed by unrest
since its creation seven years ago. But last week, in a rare
on-the-record interview, he said he had no intention of leaving Citigroup
early - or of pursuing deals that conflict with the bank's myriad
businesses when he eventually does depart. 

During a wide-ranging conversation he also reflected upon his
accomplishments and setbacks - from his notorious falling-out with James
Dimon, his former No. 2 who is now president of

J. P. Morgan Chase, to his view of Citigroup's role in financial
scandals like the

WorldCom and Enron debacles. And what does Mr. Weill consider the
most important factors in assessing his own storied career? 

"That I had a real good value system and that I cared about people
and teamwork and built the company that led and will continue to lead the
change in progress in the financial services business on a global
basis," he said. "We talked about building the best financial
company in the United States. We nearly got to that point."

Legacies, of course, are complicated affairs. That is especially true for
a talented, wily and controversial financial matchmaker like Mr. Weill,
whose creation of Citigroup was the most significant merger in corporate
America since the formation of U.S. Steel nearly a century earlier. His
exploits provoke strongly shaded opinions from analysts, friends,
colleagues and competitors about what he will leave behind when he
retires. But on this much they all agree: For all of Mr. Weill's
Napoleonic ups and downs, his career offers a window onto the evolution
of modern Wall Street. 

"How many people can you name who came from literally nowhere and
established in the course of one lifetime an institution like
Citigroup?" asked Kenneth J. Bialkin, a lawyer who is a former
Citigroup director and a longtime adviser to Mr. Weill. "He was
largely intuitive and his deals didn't come from plotting, planning and
study; they came from his own instincts and connections."

Some analysts and corporate colleagues, however, say that the very
creation of Citigroup and many of the problems that surfaced thereafter
reflected Mr. Weill's own hubris. They contend that Mr. Weill, a
self-made billionaire and one of the country's wealthiest men, swapped
the bottom-line focus and strategic discipline that characterized the
early and middle stages of his career for the temptations of ego and the
thrills of empire-building.

"In the latter stage of his career he became a product of his time:
deal-driven, acquisition-oriented and power-oriented," said Charles
Peabody, a banking analyst at Portales Partners, a research firm.
"It forced him to do things that he wouldn't have done earlier in
his career when he was picking up valuable merchandise at discount
prices."

Others are even more direct, saying that under Mr. Weill's watch
Citigroup became too swollen to manage properly. They point, for example,
to the unusual step that the Federal Reserve took last March, when it
ordered the bank to postpone large acquisitions until it established
better internal controls and cleaned up a host of domestic and
international regulatory problems. 

"His legacy has been tarnished dramatically in the last few
years," said Richard X. Bove, an analyst at Punk, Ziegel &
Company. "He came in with a reputation as a brilliant strategist and
he's going out as someone who couldn't manage everything he has under one
roof."

But Mr. Weill - who is busy completing his autobiography, attending to
extensive charitable and philanthropic works and watching the clock until
he departs from Citigroup - brooks little of this criticism. 

"I don't think it's too big to manage or govern at all," he
said. "I'm sure there would have been things that would have been
tweaked this way or that way, but when you look at the results of what
happened, you have to say it was a great success." 

ON Wall Street, as in life, there are rarely second acts. Mr. Weill,
commonly known as Sandy, is one of the exceptions.

After starting his own securities firm in 1960, he and a savvy, revolving
cadre of partners built a bootstrap operation into Shearson Loeb Rhoades,
one of the largest stock brokerage firms in the country. His sale of
Shearson in 1981 to

American Express, an emblem of blueblood financial supremacy, was a
personal triumph for Mr. Weill, whose Brooklyn boyhood and Jewish roots
often rubbed up against lingering elitism and anti-Semitism on Wall
Street.

But Mr. Weill, volatile, insecure and aggressive, meshed poorly with
American Express's button-down, bureaucratic culture. In 1985, the
company ousted him as president, and for a year he wandered in the
financial wilderness, written off as someone who had brought a voracious,
can-do discipline to the Street but whose time might have passed. But in
1986, at the age of 53, he began rebuilding by buying a sleepy consumer
lending outfit in Baltimore called Commercial Credit.

Using that business as a springboard, Mr. Weill's team, which included
Mr. Dimon, deployed its tried-and-true formula for serial acquisitions:
find a target that generates lots of cash but is larded with excess
employees and expenses, whittle it down to its basics, use its cash to
acquire another company, cut the new acquisition's costs, then keep
buying until you are sitting atop a tidy little empire.

"Sandy has an ability to look at complex balance sheets of companies
and very quickly assess what a pro forma combination of the companies
would look like," said Jack H. Nusbaum, a lawyer who advised Mr.
Weill on a series of early acquisitions. "He could decide very
quickly how much the combined companies should be worth and he would not
deviate from that number in most circumstances."

Mr. Weill was single-minded in his pursuits - eating, breathing and
sleeping business until it overlapped entirely with his family life.
Colleagues were expected to follow suit. When they did not, or when they
started to get more attention than he did, they were often shown the
door.

Dealmaker that Mr. Weill was, he sweated the details. "People think
Sandy is a risk taker, but he's actually one of the most risk-averse
people I know," said Robert B. Willumstad, a banking veteran who
will leave as Citigroup's president and chief operating officer this
month to seek a C.E.O. job elsewhere. "Whenever he would find a
company, transaction or person that he liked, he would get excited. He
was like a kid with a new toy. But that excitement would fade as we went
through the due diligence process, and right before you had to sign the
deal, he was unbearable."

EVEN so, Mr. Weill snared company after company. Commercial Credit bought
Primerica and its Smith Barney brokerage firm in 1988, then snapped up
Travelers, a large insurance concern. The new company, adopting the
Travelers name and its distinctive red umbrella logo, bought Shearson
back from American Express in 1993 - a vindication, of sorts, that Mr.
Weill still savors. Four years later, Travelers bought Salomon Brothers,
the bond trading giant, and in 1998 merged with Citicorp, the largest and
most global bank in the country.

Mr. Weill said the highlight of his career was the day when that landmark
$70 billion merger was announced. "Going down to the Waldorf-Astoria
for a press conference, with a gazillion flashbulbs flashing - I felt
like a rock star," he recalled. "You're just blinded by
God-knows-how-many cameras, and our stock going up 20 percent that day,
creating $15 billion or $20 billion of incremental market value. It was a
very exciting thing."

Mr. Weill's moment coincided with the 1990's stock market boom, the
emergence of C.E.O.'s as superstars and the predilection in the news
media for covering mergers - which failed as often as they succeeded - as
if they were glorified horse races. Mr. Weill basked in the spotlight,
feeding what former colleagues describe as an obsession with his media
image. 

Enamored of the social circuit, his growing fortune and his role as a
fund-raiser for such organizations as Carnegie Hall, Mr. Weill had come a
long way from his early days of rumpled suits and a stubby cigar stuck in
the corner of his mouth.

"He used to attract bright people and engage in real debates and
shouting matches with the goal of developing concepts that worked - and
it did work because he listened as well as yelled," Mr. Bove said.
"But in the later stages of his career, he moved arguers away from
him and he began to make bad decisions and mistakes."

Mr. Weill and John S. Reed, Citicorp's chief executive at the time of the
merger, promised the creation of an international financial supermarket
that they would lead as co-C.E.O.'s. To achieve that goal, they would
need a cohesive management team. But Citigroup got off to a rocky start:
shortly after the merger, Mr. Weill and Mr. Reed fired Mr. Dimon, once
considered their possible successor, as the bank's president. Then Mr.
Weill and Mr. Reed crossed swords, with Citigroup's board selecting Mr.
Weill in 2000 to run the company on his own. 

Among the heads that have rolled after his deal-making, Mr. Dimon's
departure was the one that he truly regretted, Mr. Weill said. "The
fact that we couldn't work out a relationship that would have been more
satisfying to him and productive to the company, I feel badly
about," he said. "I looked at him as close to a member of my
family. But that was a decision that John and I made together and I
think, unfortunately, it was the right thing to do at that time. But to
this day there is a part of me that really loves Jamie."

Mr. Weill contested the idea that departures at Citigroup or his
management style in recent years were byproducts of his dependence on
loyal "yes people," as critics maintain. "I disagreed with
some people sometimes, so the give-and-take didn't always go toward what
the givers were saying," he said. "When you're the C.E.O. and
that's where the buck stops, you have to make some of those decisions.
But I don't think it ever became non-open with me."

Some people say that Mr. Weill's volatility was just part of the package
and was offset by his skills at winning over most anyone he met. "If
he wants you to like him, you will," said Andrall E. Pearson, a
former Citigroup director. "That said, he could be a real schmuck at
times, yelling and screaming. He's an unforgettable character and a
charming guy."

Despite such upheaval, some of the numbers defining Mr. Weill's career
are impressive. Investors who placed their money with him and held on
after he bought Commercial Credit would have soundly beaten the overall
stock market between 1986 and 2004. According to Steven Kaplan, a finance
professor at the University of Chicago Business School, an investment
with Mr. Weill would have generated annual returns of 22 percent from
1986 to 2004, versus 11 percent for the stock market as a whole.

Mr. Weill has profited personally as well. Over the last decade, he has
hauled in $953 million in compensation from the companies he has run. He
points out that he has pledged about $500 million to various nonprofit
organizations.

But another measure of Mr. Weill's success at Citigroup would be his
ability to evolve from an acquisition hound and cost cutter into a real
operator able to engineer consistent internal growth. While some
financial services companies have had success cross-selling a basket of
closely related products like credit cards and mortgages, the idea of a
true financial supermarket remains elusive - even at Citigroup. It has
yet to create such a

Wal-Mart-style giant where investment banking, consumer lending,
insurance, asset management and brokerage services operate comfortably
under one roof. 

"I don't mean to denigrate the acquisitions he's done because he's
been very successful in that regard, but acquisitions are the easy
part," said Samuel L. Hayes, a finance professor emeritus at the
Harvard Business School. "Overseeing internal growth is much harder.
He has shown some managerial capabilities but he has not yet shown that
the results of the Citigroup conglomeration have produced an entity that
can operate as one and truly call itself a one-stop financial
supermarket."

In the end, Mr. Dimon may have been the lucky one. He got out of
Citigroup just before it headed into one of its darkest periods. As the
stock market swooned and Eliot Spitzer, the New York attorney general,
started a volley of investigations, Mr. Weill's limitations as an
operator became more apparent. 

"One of the great myths about Sandy is that he came in, turned the
lights on, did all of the work and turned the lights off at night,"
Mr. Willumstad said. "The truth is, Sandy was not that involved in
day-to-day operations at the company. In 20 years, I never sat down to
talk one-on-one with Sandy about consumer finance, which was what I was
running and was one of the biggest businesses in the
company."

Regulatory inquiries in the United States and overseas laid bare serious
problems. Some, ranging from banking improprieties in Japan to trading
shenanigans in Europe, could be dismissed as the handiwork of wayward
units in Citigroup's far-flung and sometimes poorly supervised
operations. 

But others, like the gouging of low-income borrowers, continued even
after regulators warned the bank to stop such activities. There were also
glaring conflicts of interest that analysts said derived in part from Mr.
Weill's relentless desire for Citigroup to produce double-digit financial
returns.

Glass-Steagall, the hoary law that Citigroup's creation helped to
displace, was intended to prevent conflicts among consumer, commercial
and investment banking. Yet Citigroup became a focal point of nearly
every investigation that examined such conflicts, most notably in
relation to its role in the collapses of WorldCom and Enron. The bank
eventually paid more than $4.65 billion to settle regulatory inquiries
and class-action lawsuits.

The scandal that may have done the most damage to the reputations of
Citigroup and Mr. Weill was the investigation of questionable corporate
research produced by the bank's star telecommunications analyst, Jack
Grubman. E-mail messages unearthed in the investigation indicated that
Mr. Weill might have done favors for and put pressure on Mr. Grubman in
exchange for glowing coverage of

AT&T, which Citigroup wanted as a major client. Although the
scandal forced Mr. Weill to withdraw as a candidate for the board of the
New York Stock Exchange, to this day he says he did nothing wrong.

"Some e-mails surfaced from Grubman that he, under oath, has said
many times, that the e-mails didn't have any basis in fact but were done
to impress another person," Mr. Weill said. He learned, he said,
about "the danger of free-form e-mails where people are walking down
the street BlackBerrying to one another - God knows what they're saying -
and then taking part of what they say out of context to make a
point."

Amid the papers and magazines piled high on Mr. Weill's U-shaped desk is
a sign with the word "e-mail" slashed out in red ink. Mr. Weill
also dismisses accusations that Citigroup landed in the middle of
numerous investigations because it had grown too big to manage or that
the model had too many inherent conflicts. He said he was confident that
steps the bank has taken recently to erect tighter boundaries between its
businesses and to instill stronger ethical standards would limit abuses
in the future.

"The financial industry has always been an industry with lots of
financial conflicts," he said. "We relied on our lawyers and
our compliance people and our standards of how to do business and the
ethics of the people we had working with us to be able to handle that
conflict. I think that after the fact, it wasn't enough to say we were
going to be smart enough to handle the conflict. We had to go to another
level so that the conflict wasn't there at all."

Awash in investigations and conflict resolution, Mr. Weill stepped down
as C.E.O. in 2003, handing the corporate reins to his longtime confidant,
Charles O. Prince, thus putting an end to guessing games surrounding his
succession plans. 

As he points to a photograph of himself aboard Air Force One with
President Bill Clinton, Mr. Weill says it won't be difficult or poignant
for him when he officially retires next spring. But if the events of this
summer were any indication, he is still having a hard time letting go.

Mr. Weill said that earlier this year he told Citigroup executives that
he could buy and run the company's underperforming asset-management
business - an inside sale that the bank told Mr. Weill would be rife with
unacceptable conflicts. He said he then proposed calling up his friend
Raymond A. Mason, the chairman of

Legg Mason, to suggest a swap: Citigroup would get Legg Mason's
brokers and Legg Mason would get Citigroup's asset management business.
That deal was announced earlier this summer.

Mr. Weill's next proposal raised even more hackles within Citigroup. He
recently approached his board with the idea of retiring early to start
his own private-equity fund. "The company would have been an
investor, a big client," Mr. Weill said. "I saw it as being
complementary rather than being competitive."

Citigroup's board, however, believed that the new endeavor would be
competitive and told Mr. Weill that if he left early to pursue it, he
would have to forgo some retirement perks, including the use of the
company's private jets. Mr. Weill says he ultimately decided not to
pursue the venture because he didn't want to do anything that would be
seen as being competitive, not because he might lose some perks.

Contract disputes aside, his well-honed practice of second-guessing his
managers remains intact. Mr. Prince has been selling parts of Mr. Weill's
former empire as he tries to make the Citigroup elephant dance. When
asked if he is happy with the job that Mr. Prince is doing, Mr. Weill
pauses before answering. 

"Hmm, happy? O.K. Complicated question," he said. "Nothing
is perfect. I recognize for Chuck to be successful, he has to have his
own space. The worst thing would be for him to be perceived that he's my
puppet, so he's gone out of his way to prove he's not my puppet, which is
fine." 

STILL, Mr. Weill said, "the performance of the stock is nothing to
shout home about." (Since Mr. Prince took over nearly two years ago,
the company's stock has been essentially flat.) Despite such misgivings,
Mr. Weill said his reputation remains firmly tethered to the performance
of his successors.

"I could go and take whatever I invest in a private-equity fund and
double it by 10; it's not as important to me as Chuck and this management
team doing well," he said. "My legacy is going to be how they
do. If they screw up, it's not going to make my legacy - you won't be
talking to me anymore."

Mr. Prince is the first to acknowledge that things could be going better.
"The stock price is not where any of us want it to be," he said
in an interview. "We have to go through a period where we don't give
people headaches, where we have good sustained organic growth and do good
deals that expand the network and scope of the business."

But Mr. Weill's legacy will involve more than just the track record of
his successor. While it is unlikely that he would ever have been included
in the ranks of corporate pioneers like John D. Rockefeller or Henry
Ford, he might have had the chance to be remembered alongside Alfred P.
Sloan, the management whiz of

General Motors. But Citigroup's recent woes, and Mr. Weill's
managerial lapses, make even that unlikely, analysts said. 

"Sandy Weill is an ambitious entrepreneur who made a ton of
money," Mr. Bove said. "If he did have a legacy, I think Chuck
Prince is dismantling it piece by piece."

Mr. Weill has few uses for such criticism. Citigroup, he asserted, was a
peerless institution when it was created in 1998 and it remains so today.
"Seven years later and nobody has come close to replicating the
model," he said. "The person that everyone thought would die at
his desk has decided not to die there."

Miklos A. Vasarhelyi
KPMG Professor of AIS
Director RARC / CARLAB
Rutgers University
315 Ackerson Hall
180 University Avenue
Newark, NJ 07102
(973) 353 5002
(201) 454 4377 (cell)
http://raw.rutgers.edu/mik los