Wednesday, February 27, 2008

Citigroup's unusual analyst meeting

Yesterday the Wall Street Journal reported that Citigroup was having a meeting with 15 to 20 analysts and investors last night. It was described as a cocktail hour to meet with new CEO Vikram Pandit. On the surface that sounds like an innocuous meet and greet. From an SEC perspective it will be open to an instant replay to see if someone hit the chalk line.

Regulation FD has for six years required that all material statements, or possible material statements, that a company makes be held in a public forum, with broad access for all investors and analysts. For a company like Citi that has had more than its share of legal issues in recent years, so much so that they named an attorney with no real banking experience as their previous CEO, it's an unusual risk to take.

Another big New York financial services firm held a similar meeting in the late '90's. That was before Reg FD existed, and even then there were mixed opinions within the firm as to whether it was a wise idea. A Vice Chairman and the CEO were in favor and the General Counsel fell in line. It was unequivocally viewed as a strategic discussion, not one to discuss anything like expected financial results. It was different from the Citi meeting in that it was a dinner so the setting provided for a broader discussion. In addition the 20 or so analysts invited were all from the sell-side, or brokerage firm analysts. The firm's executives were careful, as planned, to keep all discussion on a strategic level. At the dinner table a question was asked about whether the firm was willing to entertain a merger. The answer, entirely truthful and said in a low key manner, was "only if the merger was transformational". The well-fed analysts then beat the word "transformational" into the ground as the discussion progressed, and by the next day it was news, big news. A major merger was at the least a possibility and perhaps imminent. The market thrives on this kind of speculation. Needless to say major investors were truly ripped as they didn't want to hear this type of commentary second hand.

As stated, Reg FD did not exist at the time, so there was no regulatory fall out. Not immaterial, however, there were big mutual fund and pension fund investors who openly wondered or complained about why they, who had as much as billions of dollars invested in the stock of the company, heard about this discussion from salary and bonus analysts with no real stake in the company.

There is no news visible on Citigroup today. The stock is trading in line with the market. It was likely just a gathering to shake hands, smile, listen, and exchange platitudes. It was still a risky move, and not a good idea.

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