Marketplace: News Archives

Monday, December 23, 2002
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It's Monday, December 23rd. I'm Cheryl Glaser, sitting in for David Brancaccio.

They're bracing themselves as they wait for the other shoe to drop at the world's biggest financial services company. On the heels of a costly settlement with government regulators last week, Citigroup said today it's setting aside almost $1.5 billion, mostly to cover costs from investor lawsuits over allegedly giving out misleading investment advice. Marketplace's Bob Moon says the move will take a hefty chunk out of Citigroup's fourth-quarter profits:

Moon: "Even though Citigroup is headed for an expected record profit for the year that's drawing to a close, nobody was popping champagne corks during CEO Sanford Weill's conference call today:"

Weill: "The year 2002 has been a very difficult one."

Moon: "Last quarter, the banking giant made $3.9 billion. This quarter, it'll reserve about $1.3 billion to settle with government regulators and cover the cost of private lawsuits over alleged analyst conflicts-of-interest, as well as litigation related to the collapse of Enron.

Citigroup says the charge will lower its fourth-quarter earnings by around 25 cents per share. And, Weill acknowledges an expected wave of lawsuits could end up costing even more."

Weill: "We felt that it's better to face the issue with what is our best judgment at this point in time, rather than to do nothing. "

Moon: "Citigroup has agreed to pay a $400 million share of the penalty to settle charges that Wall Street brokerages issued tainted research favoring their investment banking clients, and handed out hot stocks to favored clients. Now, investors are lining up to recover their losses. Sanford Weill:"

Weill: "This is something that we plan to defend vigorously, and the cases probably will go on for years and years."

Moon: "In spite of that cloud, Citigroup's chairman says he's optimistic about earnings growth in the New Year.

The lawyers and investment bankers who advised Enron have been put on notice. Last Friday, a federal judge decided Enron's investors can sue these advisers for telling the company it was OK to set up special subsidiaries to move the firm's debt and energy swaps off the books. As Marketplace's John Dimsdale explains, that ruling could make corporate advisers more accountable:

Dimsdale: "Until now, the accountants and lawyers and bankers who advised Enron were able to claim some legal immunity from the flurry of lawsuits spawned by the big energy company's bankruptcy. Firms such as Merrill Lynch and JP Morgan claimed they were only giving advice and didn't make the actual decisions that resulted in illegal accounting.

But federal judge Melinda Harmon has made a preliminary finding that because of their active work in structuring what may be illegal financial transactions, these 'secondary actors' may have crossed the line.

Lawyer Stephen Meagher, who has represented corporate whistleblowers, says Judge Harmon's ruling could transform corporate fraud litigation."

Meagher: "Absent a real chance of liability, law firms and accountants, and insurance companies for that matter, were much more likely to try and be supportive of aggressive tactics employed by their clients."

Dimsdale: "If upheld, the ruling could provide a windfall for investors looking to regain some of the money lost when Enron declared bankruptcy more than a year ago.

Gary Brown, who worked on the Senate investigation of Enron earlier this year, says some deep-pocketed banks -- such as Citigroup and JP Morgan -- could now be liable."

Brown: "Banks knew various financial structures; they were selling them to Enron knowing they would be used in a way that potentially misled investors as to the health of the company, which allowed Enron to paint a more robust financial picture to the investing public than was true."

Dimsdale: "Lawyers caution the ruling is preliminary and could be only temporary. It's a case likely to end up in the nation's highest court.

In Washington, I'm John Dimsdale for Marketplace."

While the Senate was busy naming a new CEO -- otherwise known as new Majority Leader Bill Frist -- Wall Street took it easy on this, the last full trading day before Christmas. The Dow fell 18 points, or two-tenths of a percent. The NASDAQ gained 18 points, or 1.33 percent. Details when we do the numbers.

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Rundown

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Marketplace host Cheryl Glaser talks with small business advisor Alan Fishman about the advantages small businesses have in a bad economy.
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Music Bridge:Beep Beep Love - The Incredible Moses Leroy
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"Best Gift Ever" Series
What’s the best gift you’ve ever received? Something usually springs to mind, whether it’s a shiny red tricycle you’ve always wanted, or an engagement ring? Cheryl Glaser finds out.
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Music Bridge: Have Yourself a Merry Little Christmas - Ken Peplowski
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Look Ahead:
Looking at retail from the other side of the counter: a story of an exhausted clerk at the Santa Bear store.