Research better pay
Citigroup snapped up Sanford C. Bernstein CEO Sallie Krawcheck to run its research group,which they will call "Smith Barney." Seems that Citigroup had the old name lying around and finally found a use. This is a real coup -- the head of research at Keefe, Bruyette & Woods agreed with me in The New York Times. He said: "This is a huge coup." I'd say it's real and huge, but I'd be redundant then, wouldn't I?
Making research pay is hard. I spent almost a year trying to figure out how to balance banking and research concerns with a startup bank. The economies of scale a Citigroup brings to the problem, because the bank and brokerage side of the business can drive trading volume fees to the research group.
Starting up, however, is very difficult. Rutberg & Co. is making a game effort to produce research, but it isn't a pure research firm at this point, because it needs to bring capital to deals through syndication in order to participate in profits.
The Citigroup research group, the new Smith Barney, Citigroup explains, will include its private client services group, which includes 12,500 personal financial advisors -- this assures trade volume, at least what there is there days, will be a significant source of revenue. Investment banking and underwriting will live on their own, but it will likely remain possible to link them on individual deals, by assuring IPO volume by allocating shares to Smith Barney clients. It's not clear if that will be encouraged or not, but Citigroup CEO Sandy Weill said: “Over the last several weeks, we have been working closely with our regulators and have been considering a number of ways to address the issues challenging the industry. Our new structure is consistent with the goal of assuring the impartiality of research, which we share with our regulators."
We'll see. Sanford Bernstein has a stellar reputation for impartiality, with Krawcheck an important part of that.
Posted by Mitch Ratcliffe at October 31, 2002 12:01 AM | TrackBack