Citigroup's Climb to Riches, One Merger at a Time
with Sanford I. Weill

FLOYD NORRIS / NY Times 17jul03

[Wall Street Journal articles below]

If ever there was a case in which investors bought a boss, not a business, it came in the fall of 1986 when a sleepy lender to borrowers with not very good credit, known as Commercial Credit, went public.

Sanford I. Weill owns 22,777,290 shares of Citigroup
with a market value of more than $1 billion. His
annual dividend checks will now total $31,888,206.

The boss was Sanford I. Weill, who had been ousted as president of American Express and rebuffed in what was viewed as a haughty offer to take control of the Bank of America when its fortunes were at a low ebb.

Investing with celebrity chief executives is often not a great strategy. But this one worked very well.

Yesterday Mr. Weill, 70, announced that he was stepping down as chief executive of the company, which after a long series of mergers and acquisitions became Citigroup, the global financial giant. Along the way it went through the names of Primerica and the Travelers Group before merging with the bank then called Citicorp.

The 1986 stock offering was the third-biggest new issue ever, raising $857 million for the 80 percent of the company being sold. Mr. Weill had put $5 million of his own money into the stock, at a price a little below the price to the public, and had options good for a 6 percent stake in Commercial Credit. Those options, as much as anything else, made him a very rich man.

An investor who put up $10,000 at the initial offering, and who reinvested all dividends and distributions over the years in Mr. Weill's metamorphosing company, would have had stock worth $334,349 at Citigroup's closing price of $45.52 yesterday. That is about six times what an investment in the Standard & Poor's 500-stock index would have come to over the same period. (All calculations ignore taxes.)

Few thought that Commercial Credit was a great business at the time. Only a couple of years earlier, the company had been unable to find a buyer. Control Data, which owned Commercial Credit, wanted out, and it brought in Mr. Weill in the hope of luring investors.

Mr. Weill's reputation had been based on the growth of a small brokerage firm he helped found in 1960 — first named Carter, Berlind, Potoma & Weill — into the Wall Street giant Shearson Loeb Rhoades by the time it was acquired by American Express in 1981. Mr. Weill got the No. 2 job at Amex, but eventually lost a power struggle to the chairman, James D. Robinson III, and found himself out of a job.

Later, when he eventually merged his second empire with Citicorp, he made sure that he was co-chief executive, and when a power struggle developed this time, he won.

Mr. Weill's two empires — which in a way were one because much of what was Shearson eventually ended up at Citigroup — grew in similar ways. He was always happy to take on the name of the company with which he was merging. He made a practice of buying companies with histories more glorious than their current conditions and whipping them into shape — all the while harnessing the fame of the name acquired.

Mr. Weill also seems to have accomplished something where many have tried and few succeeded: the merging of a commercial bank and an investment bank into a successful enterprise. Smith Barney, the brokerage firm, has gotten a lot of underwriting business thanks to its affiliation with Citibank.

It no doubt helped that Mr. Weill knew a lot about Wall Street. Outsiders to that business tend to find running an investment bank a highly unrewarding experience, as salaries get out of hand and profits slide away.

There were, to be sure, some reversals. His mergers were often questioned on Wall Street. Primerica, an empire run by Gerald Tsai Jr., a onetime wunderkind mutual fund manager, was seen as over-leveraged and perhaps just a means by which Mr. Weill could return to Wall Street through ownership of Primerica's Smith Barney unit. The values of Citigroup and Travelers fell sharply in the months after that deal was announced in 1998, though they soon recovered.

More recently, Mr. Weill's decision to give $1 million to an elite nursery school, to help the children of Jack B. Grubman, then a star Smith Barney analyst, gain admission, produced embarrassing publicity after Mr. Grubman's reputation crumbled.

But Mr. Weill recognized sooner than most of his peers that the post- Enron atmosphere meant that Wall Street could no longer sell financial products whose sole purpose was to help companies mislead investors.

Sometimes, investors profited by Mr. Weill's knowledge of what to sell. He got out of the health insurance business by spinning off one company and selling others to Aetna, before most people realized that this was not going to be a good business. And last year, he spun off the property and casualty insurance businesses of Travelers. The calculations on profits of investing with Mr. Weill assume the quick sale of spun-off shares, and the reinvestment of the proceeds in his company.

Over the years, pressure grew on Mr. Weill to announce a succession plan, and yesterday he did, with Charles O. Prince to become the new chief executive at the end of this year. Mr. Weill will, however, remain chairman until Citigroup's 2006 annual meeting, and in a conference call with analysts he bristled at the suggestion he would be a "nonexecutive chairman." He said his duties would include helping with strategy and meeting with government officials around the world.

He also said he might help the company with its hedging of foreign currencies, but that may have been a joke about his reputation for micromanaging.

When Mr. Prince said it would seem odd not to have Mr. Weill "nag us and push us and drive us and demand excellence every morning," Mr. Weill interjected, "Why do you think I won't do that?"

Perhaps, Mr. Prince suggested, such nagging would only come "every other morning."

Mr. Weill has done well from betting that investors would approve of his performance, and he is unlikely to be short of money even if Citigroup cuts his pay after he steps down as chief executive.

Mr. Weill owns 22,777,290 shares of Citigroup, with a market value of more than $1 billion. Just two days before Mr. Weill said he would step down, the company raised its dividend by 75 percent. His annual dividend checks will now total $31,888,206.

Citigroup's Weill Taps Top Aide as His Successor 

MITCHELL PACELLE and MONICA LANGLEY / Wall Street Journal 17jul03

While Staying Chairman, Weill Picks Prince as CEO; Willumstad Is Promoted

Sanford I. Weill, Citigroup Inc.'s 70-year-old chairman and chief executive, put an end to long-simmering questions about succession at the world's largest financial-services empire by tapping one of his oldest confidants, Charles O. Prince, to become the next CEO.

But in choosing the low-key, 53-year-old executive -- and by announcing that he would stay on as chairman until the 2006 annual meeting -- Mr. Weill signaled that he is likely to loom large within the company long after he relinquishes the CEO post Jan. 1.

"My brain won't stop," Mr. Weill told analysts after breaking the news to employees. "I think I know when I can be helpful. But these will be the guys running the business. And they better not screw up."

That, in essence, was the message from Wall Street as well. Concerns about the changing of the guard at Citigroup sent the shares down 2.8% to $45.52 in heavy 4 p.m. New York Stock Exchange composite trading Wednesday.

Michael Holton, manager of a financial-services fund at T. Rowe Price Group, which owns 27 million shares of Citigroup, said he wasn't surprised that Mr. Weill's announcement jolted the stock, but doesn't expect the effects will linger.

He says the stock sank in part because of the uncertainty surrounding Mr. Prince, who, despite his status as a key Citigroup insider, is relatively unknown outside of the company. Mr. Weill's choice of Mr. Prince, who has acted as his right-hand man for much of the past 17 years, suggests that a change in business strategy is unlikely.

The selection of Mr. Prince followed months of agonizing by Mr. Weill over his two leading candidates: Mr. Prince and Citigroup President Robert B. Willumstad, 57, who runs Citigroup's lucrative consumer businesses.

The move followed a decision by Mr. Weill to move up the announcement of his departure date, which previously had been set for 2004. "It was Sandy who drove the timing here," said board member and succession-committee member Richard D. Parsons, chairman and CEO of AOL Time Warner.

In announcing the board's decision, Mr. Weill said that Mr. Willumstad, who has worked with him since 1986, would also be given the title of chief operating officer, and would run the company with Mr. Prince. It remains to be seen whether Mr. Willumstad, after being passed over for the top job, will eventually be lured away to a top spot at another company, a frequent occurrence in such situations.

"We have agreed to do it together," Mr. Willumstad said. "That's the way it's been presented to the board."

Mr. Prince is a savvy attorney who had limited operating experience before he was put in charge of Citigroup's scandal-tainted investment bank last year. Mr. Willumstad is credited with keeping the consumer operations churning out profits during the downturn.

Both Messrs. Prince and Willumstad have been an indispensable part of Mr. Weill's acquisitive push. As chief lawyer, Mr. Prince has negotiated every deal since 1986, including the purchases of Smith Barney, Shearson, Travelers, Salomon Brothers and Citicorp. After the transactions closed, Mr. Willumstad has executed the mergers -- blending disparate firms, slashing costs and producing profits.

But neither executive offers the same kind of profile as Mr. Weill, whose love of the limelight, hunger for bold acquisitions and substantial compensation personified the bull-market phenomenon of the imperial CEO. Last year, Mr. Weill also found himself and his company at the center of a scandal over both the honesty of its research and the propriety of its dealings with Enron Corp.

"The Sandy Weill show is done," Mr. Prince said in the presence of Messrs. Weill and Willumstad. "The Chuck and Bob show is going to be different." While Mr. Weill built the company, Mr. Prince said their job would now be keeping it on course, with no change in direction.

Work on a succession plan heated up in early 2002, when the succession committee of the company's board began meeting with potential candidates. But the process came to a halt when the Wall Street investigation turned to Citigroup and Mr. Weill.

By late last year, a framework was in place for Citigroup to settle a variety of regulatory inquiries over its research practices, and its stock appeared to be bottoming out. Mr. Weill and the succession committee felt comfortable resuming the process.

"I started thinking about it around the time of my birthday, on March 16," he recalled.

After settling on Mr. Prince, Mr. Weill needed to figure some way to keep Mr. Willumstad from leaving. "My goal here was to work something where Bob and Chuck could work together," Mr. Weill said.

Last month, Mr. Weill and his wife went on their annual vacation to the French Riviera. He decided then that it was time to make the move, because Citigroup "had the wind at its back," he said Wednesday. Citigroup was about to report another quarter of record earnings and a huge dividend increase and announce the $3 billion acquisition of Sears, Roebuck & Co.'s massive credit-card operations.

After returning to New York, Mr. Weill summoned Mr. Prince to his vacation home in New York's Adirondack Mountains July 5. "I told him what my idea was. I told him I was going to speak to the board about it."

Retaining Mr. Willumstad, however, remained vital to Mr. Weill's plan. Citigroup's retail operations generate about 60% of the company's profits.

On Monday, July 7, a nervous Mr. Weill informed Mr. Willumstad that he would choose Mr. Prince as CEO, but that he wanted to name him as the COO. He added that he expected the men to work as a "partnership."

Disappointed, Mr. Willumstad sought more assurance from Mr. Weill -- and Mr. Prince -- that they intended to work as a team. In a quickly arranged lunch in Mr. Weill's private dining room the next day, Messrs. Weill and Prince assured Mr. Willumstad that he would be an "equal partner" with Mr. Prince inside the company and before the board. They emphasized that Mr. Willumstad would have about three-quarters of the operations reporting to him as COO. He agreed to accept the post.

Mr. Willumstad will succeed current COO Michael T. Masin, who was hired last October from Verizon Communications Inc. He will assist in the transition and will serve as a Citigroup consultant through 2005.

Former Treasury Secretary Robert Rubin will retain his position as chairman of the executive committee.

Mr. Weill pitched his plan to the board during a meeting that had already been scheduled for Monday and Tuesday. As part of their due diligence, the board asked to speak with Messrs. Willumstad and Prince together. The directors asked them to discuss their vision, as well as their commitment to work as a team.

Mr. Weill was emotional during Wednesday's announcement to 100,000 employees in North America and Europe. When he began explaining his decision, he choked up, tears welling in his eyes. He reached for a glass of water as he tried to compose himself. "I'm OK," he gulped.

The question throughout the company is whether Mr. Weill can really relinquish the day-to-day running of his massive creation. Even as Mr. Weill professed that he would give Messrs. Prince and Willumstad room to manage, he couldn't resist getting in his digs. When the pair indicated they were ready to get back to work the next day, Mr. Weill said: "What, not today?"

--Susanne Craig contributed to this article

Next in Line at Citigroup: Jitters 

ANN DAVIS Wall Street Journal 17jul03

Naming of New CEO Greeted By Investors With a Selloff

Charles O. Prince, Citigroup Inc.'s next chief executive, is a fixture inside the world's largest financial-services firm. A lawyer, he has negotiated nearly every major acquisition for his boss, Sanford I. Weill, over his mentor's Wall Street career. And he has guided Citigroup's securities-firm unit after a turbulent year of scandal and regulatory scrutiny.

But investors don't know Mr. Prince well and are unsure of his management talent -- and Wednesday they showed it.

Following news that Citigroup picked Mr. Prince to become chief executive next year, the stock sank 2.8% to $45.52 in 4 p.m. New York Stock Exchange composite trading amid heavy volume. The selloff hinted at a big question hanging over the market: How did a risk-averse lawyer who shuns attention end up with the most coveted corner office in global finance?

It wasn't by having sharp elbows. Those close to Mr. Prince say he is willing to suppress his ego when needed -- a far cry from Mr. Weill. Over a 17-year career at Citigroup and its predecessor companies, Mr. Prince, 53 years old, has learned to share power with subordinates when he believes they know their business well. The consummate Mr. Inside has been content to shun the spotlight and let his bosses, most of all Mr. Weill, play the role of Mr. Outside.

That is a role he may continue to play. Mr. Prince, named only last year as CEO of Citigroup's global corporate and investment bank, will have Mr. Weill as chairman until 2006. He is expected to lean heavily on his new second-in-command, Robert Willumstad, to keep the consumer-banking earnings machine humming at Citi. In an interview, Mr. Prince said, "Bob and I have been on the long march together," and said he considered their future task a partnership. It remains to be seen how much Mr. Prince will defer to Mr. Weill on strategic business decisions before 2006, when Mr. Weill leaves as chairman, but Mr. Weill is sure to assert himself, especially at the start.

Mr. Weill is "a very tough act to follow," Mr. Prince acknowledged in an interview. But he said of his new chief operating officer, Mr. Willumstad, in a talk with analysts Wednesday morning: "Bob and I have been partners and friends for 17 years. We trained with Sandy." A Citigroup director says: "He knows he's now going to have to step up and make his own reputation."

Should the partnership with Mr. Willumstad falter -- for example, if Mr. Willumstad is lured elsewhere or is dissatisfied playing second fiddle -- Citigroup could be in a bind. For now, the arrangement seems to offer something for everyone: Mr. Weill stays very much in charge, Mr. Prince has backup during his trial by fire, and the board can move beyond the succession question.

Michael Holland, head of the New York investment firm Holland & Co., sees his appointment as an "all clear" signal that Citigroup for now has the best of two worlds: a financial lion as chairman and a CEO liked by regulators who can steer the firm out of legal jeopardy. Along with former Treasury Secretary Robert Rubin as chairman of the executive committee, Mr. Holland says, "that's not a bad combination of factors right now."

Mr. Prince, who received a 2002 pay package of $2.8 million in cash and $3 million in restricted stock, is one of several lawyers whose stock is rising on Wall Street. The regulatory scrutiny of the past two years has led some firms to put attorneys in prominent leadership roles. At Credit Suisse Group's Credit Suisse First Boston unit, for example, former Shearman & Sterling senior partner Stephen Volk is chairman, and Gary Lynch, the firm's global general counsel, was named a vice chairman. Selecting a lawyer to run Citigroup is an indication of the more cautious tone on Wall Street these days in the wake of an April pact in which 10 Wall Street firms agreed to pay $1.4 billion and overhaul conflicts between analysts and investment bankers.

CITI ON THE MOVE

Charles "Chuck" Prince will replace Citigroup's Sanford "Sandy" Weill as CEO and as chairman in 2006.
Below, some events that have helped to reshape Citgroup recently and the company's daily closing share price.

Mr. Prince spearheaded Citigroup's participation in that deal and agreed to pay $400 million -- the largest amount of any firm -- after damaging disclosures came to light about how the firm's analysts manipulated research at the whims of investment-banking interests. Mr. Weill gave him the job of running the investment bank last fall "to get Citigroup as lily white as possible as quickly as possible," a person familiar with Citigroup said.

Messrs. Weill and Prince met in 1986, when Mr. Prince was general counsel of a company Mr. Weill was negotiating to purchase. Since then, they have worked closely together: Mr. Weill used the purchase of that Baltimore consumer-finance company -- Commercial Credit Co. -- as the stepping stone to a voracious acquisition spree that culminated in Citigroup. Along the way, Mr. Prince negotiated deal terms; Mr. Willumstad integrated the acquisitions.

Like many Citigroup executives, Mr. Prince has incurred Mr. Weill's wrath. In his early days, he made a mistake on a regulatory filing at Commercial Credit. He went in to Mr. Weill and confessed. Mr. Weill blew up at him, and it was then that Mr. Prince felt he was a member of the team.

A workaholic, Mr. Prince is known for his loyalty to Mr. Weill. In 1997, he delayed surgery on a cancerous kidney so he could help Mr. Weill close the purchase of Salomon Brothers. The two men travel together and have gone on diets and an exercise regimen together; each recently shed about 30 pounds.

Mr. Prince typically seeks consensus. Joan Guggenheimer, who was his general counsel at the investment bank that was formerly Salomon Smith Barney before leaving for Bank One Corp. earlier this year, says Mr. Prince often nudged misguided executives "in the right direction without making people feel defensive about it. The debate doesn't ever become, 'It's my way or your way.' Instead it's 'Let's think through the right way.' "

He also gives aides a long leash once he trusts them, says Barbara Yastine, former chief financial officer of Citigroup's securities firm and now finance chief at Credit Suisse First Boston. Several years ago, Ms. Yastine says, she was on a team negotiating Commercial Credit's purchase of Security Pacific Financial Services when Mr. Prince flew out to the West Coast for a final weekend of negotiations. Instead of inserting himself into the wrangling, he listened as the deal team from Commercial Credit did the talking, interjecting just once at a tense moment to say: "I think it's time to take a break." Tempers cooled and the next day the two sides had an agreement. "If we hadn't had the right answers he would have steered us in the other direction, but he didn't dictate the strategy," says Ms. Yastine.

This past September, Mr. Weill surprised many inside Citigroup by picking Mr. Prince, then chief operating officer, to run the securities-firm unit. When Mr. Prince came in, by his own admission, he spent his first three months focusing on settling regulatory issues. Eliot Spitzer, New York's attorney general, says Mr. Prince negotiated like a seasoned lawyer.

Still, within Salomon Smith Barney, some people thought his appointment seemed "odd" and he didn't know the ropes. Employees viewed him as doing Mr. Weill's bidding. He alienated some bankers by telling them he had to stay focused on the legal issues before delving into some business topics. Some were skeptical about whether he could be the savvy leader that the firm required -- and he hasn't yet had enough time in the job for many to make up their minds.

Mr. Prince's outside profile was almost nonexistent. Citigroup declined interview requests to speak with him, and officials protected him from the public eye while he was keeping his head down learning the business. Someone who knows him says Mr. Prince preferred it that way: "Chuck doesn't like attention, he doesn't want attention."

Meantime, investors aren't the only ones with questions about Mr. Prince's depth of operations experience. Earlier this year, a Citigroup director told Mr. Weill that Mr. Prince "had better perform miracles" at Smith Barney if he were to have a shot at the top spot, according to a person familiar with the matter.

Since then, Mr. Prince has been making extensive changes to the global corporate and investment bank. His investment-bank deputy, Robert Druskin, cites how they largely got rid of "co-head" structures, stripping the leadership down, and reorganized how the bank manages relationships with key corporate customers. Mr. Prince says of his time there: "The restructuring downtown is done."

--Mitchell Pacelle contributed to this article.