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SEPTEMBER 28, 2004 • Editions: Edition Preference
By Mara Der Hovanesian Citigroup's Curious Exec Exchange The giant's CFO and Smith Barney's chief swap jobs -- a regular rotation for managers on the rise or damage control in advance? In an unusual game of executive musical chairs, two top-flight managers at Citigroup (C ) announced on Sept. 27 that they would swap jobs. Todd Thomson, chief financial officer and head of strategy, will take over as chairman and CEO of Smith Barney, the financial giant's brokerage, global private-client wealth-management, and equity research unit. Simultaneously, Sallie Krawcheck will give up her CEO post at Smith Barney and take Thomson's job. The change will be effective on Nov. 5. "Through these appointments, Todd will be able to expand his skills by running one of our key operating units. And Sallie will get a broad view of our entire global organization through a critical corporate role," said Chuck Prince, Citigroup's CEO, in a written statement. Thomson, 43, has been the bank's CFO for nearly five years, and the 39-year-old Krawcheck has been head of Citi's Smith Barney unit since 2002. "Both these executives have outstanding qualifications for their new roles, and we look forward to the fresh energy and perspective they will bring to their new jobs," said Prince in the statement. It's one of the first major executive-level changes to the Citigroup team that Prince has made since he took over as CEO last October. "IT'S STRANGE." Observers' first reaction to the news was that the job switch was a demotion for Thomson. According to one Wall Street veteran, the CFO reacted by making phone calls to analysts early on Monday morning to stave off the speculation that he was on the outs with the bank's upper management. "He apparently called a lot of people to tell them he wanted to run his own unit," says the source. While Thomson wanted to oversee an operating unit of the bank, Krawcheck sought a more corporate role, the company added. "So while it's strange that they're trading jobs, they both may be getting what they want," says Mike Holton, portfolio manager of the $370 Million T. Rowe Price Financial Services Fund. Neither Thomson nor Krawcheck were available for interviews. Few can measure just how effective a business leader Krawcheck has been since her appointment as chief of Smith Barney two years ago, though some analysts say at least morale is better. She arrived during the aftermath of an investigation by New York State Attorney General Eliot Spitzer, along with other regulators, into Wall Street's conflicts between investment banking and equity research. The probes ultimately resulted in a $1.4 billion settlement agreement with 10 Wall Street firms. Citigroup has since, as mandated by regulators and under Krawcheck's direction, split the two divisions both operationally and physically. "OUT OF HARM'S WAY"? Krawcheck was recruited with much fanfare from the venerable independent research firm, Sanford C. Berstein, where she served as chairman and CEO. There she was well-regarded and known as one of the top research analysts covering Wall Street. Krawcheck was particularly favored by Chairman Sandy Weill, who was Citigroup CEO at the time of her appointment. "She certainly came in with a big hoopla and [expectations] that she would get them [Smith Barney] straightened out," says Bernie Schaeffer, chairman and CEO of Schaeffer's Investment Research. Yet some wonder how effective she'll be at managing the balance sheet of the world's largest financial-services concern or at communicating with investors -- as chief financial officers typically do during earnings conferences and such. Some interpret Krawcheck's move to the executive suite as a way to shield her from any future bad news that might emanate from the brokerage business. So says Carl Birkelbach, chief of Birkelbach Management in Chicago, an investment management and brokerage that owns Citigroup in some portfolios. The brokerage business has been rough in the last few years, given the stock market's lackluster performance. "I think that Smith Barney is not doing so terrific. They want her out of harm's way," Birkelbach speculates. PROBLEMS ABROAD. Thomson is credited for strengthening Citigroup's finance operations by providing greater transparency in the bank's financial reporting. He has been in his current position since 2000, prior to which he served as CEO of Citigroup's Global Private Bank. In a prepared statement, Thomson said, "Smith Barney has a rich history as one of the original businesses upon which Citigroup was built, and independent equity research remains a critical service to our institutional and private clients. I look forward to leading them at this important time." One thing is for certain. Citigroup is looking to groom its next generation of leaders. "If they want to bring up someone through the ranks, they'll change jobs every couple of years," says T. Rowe's Holton. Still, announcement's timing struck most Wall Street analysts as odd. Citigroup, the nation's No. 1 bank, with $1.3 trillion in assets, has been hit with a barrage of bad publicity in recent months. In mid-August, Citi's London-based traders sold billions of European government bonds, only to buy them back at lower prices in a matter of minutes, throwing the markets into turmoil. British regulators are investigating the trades, and Citi has had to acknowledge that they did not meet its standards (see BW Online, 23/9/04, "Can Chuck Prince Clean Up Citi?"). MANAGING "BLOWUPS." Then earlier this month, the bank announced that Japanese authorities had ordered Citi to shut down its private-banking operations for legal violations. The financial giant has to suspend new transactions in a month and shut down its four private-banking branches in a year. "I don't think that people thought they'd be thinking about changing their CFO [at this time]," says Holton. "They've stubbed their toe in a couple of countries." Adds Rafi Zaman, managing director of DuPont Capital Management, which oversees $2.6 billion in assets (25% of which is in financial stocks): "Being as large a bank as Citi, there will be these blowups. The question is: How do they manage that?" Whether the management switch is aimed at preemptive damage control or to groom Citi's new leaders, Wall Street watchers will be following the financial giant closely to see how the surprising changes shake out.  Der Hovanesian is a Finance & Banking editor for BusinessWeek in New York Edited by Tzyh Ng
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