What's Wrong with Citigroup's Thinking and Timing?

One would think with the recent series of management changes that have banking analysts both praising and panning the actions, and all the crap happening in “subprimeland,” coupled with the difficulty pricing less than liquid securities and the subsequent write downs, that Citigroup Inc. (C) would have enough on its plate. Add to that the valuation of hard to price securities that has already been a huge PR mess, roiled the markets, shut down whole divisions of companies and soon will be heavily investigated by the SEC, Congress or some states Attorney Generals who all want their pound of flesh.

Did anyone at Citigroup read its earnings report that was released on Monday morning?!? Doesn't it already have a large enough hornet's nest?

it have a large enough hornets’ nest?

On Monday morning, there was an item that drew less attention in the news. Veiled in the collapse of its earnings, was a FT report that Citigroup was opening an old scab to see if salt water in old wounds still stings investors.

Citigroup is planning to restore links between its stock research analysts and its institutional securities business five years after they were separated under pressure from regulators investigating Wall Street conflicts of interest.

As part of the new proposed set up, equity research would move into the newly created institutional clients division, headed by Vikram Pandit. It is believed that research will be a joint venture between Smith Barney, Citigroup’s private client business, and its institutional equities arm - with all existing safeguards remaining in place and bankers having no influence over research. Some top executives have opposed the move, which could revive fears about bankers’ influence over research on clients.

Citigroup chief executive Chuck Prince played a leading role in negotiating Wall Street’s settlement with regulators and has sought to improve Citigroup’s “ethical” culture.

This could be the first step towards a realignment of investment banking, and research. Yes, making money in research is a tough business for the sell-side these days, but I suggest that this is not a step in the right direction.

In fact, I would file this one away with hermetically sealed cans of worms that are not to be opened until this generation of investors dies off, and a new one appears that doesn’t remember the scandals of the past, and more importantly, the deeds that allowed prosecution that lead to positive change.

Disclosure: The author has no position in C.