Jack Grubman, the star telecommunications analyst at Citigroup Inc, resigned under pressure amid allegations he misled investors by issuing favorable stock ratings to win investment banking work.
Grubman is leaving by "mutual agreement," the company said.
PHOTO: NY TIMES SERVICE
He will receive US$32.2 million in severance to leave 13 months before his contract ends, according to people familiar with the matter. He is under scrutiny by Congress for the role he played in allocating initial public offering shares to executives of WorldCom Inc, which filed for bankruptcy after it misreported US$7.18 billion in expenses.
The decision to force out Grubman -- who earned about US$20 million a year -- is an effort by Citigroup Chairman Sanford Weill and his Salomon Smith Barney unit to distance the firm from the growing threat posed by more than two-dozen investor lawsuits and a Congressional investigation. Weill declined to comment.
"He was stained and I don't think there was any way to get it off him," said Jose Romero, a telecommunications analyst at Safeco Asset Management Co, which sold its stake in WorldCom earlier this year. "He was playing both sides of the fence, banker and analyst." Grubman, 48, resigned after the focus was turned to his recommendations on WorldCom and other companies whose share prices collapsed. WorldCom paid Salomon about US$80 million in investment banking fees from 1998 to 2001, Grubman said last month at hearing before the House Financial Services Committee.
"I regret that I, like many others, failed to predict the collapse of the telecommunications sector," Grubman said in a resignation letter sent to Michael Carpenter, Salomon's chairman.
"I understand the disappointment and anger felt by investors as a result of that collapse." The analyst said he had been "unfairly" singled out by a "constant barrage of unsubstantiated negative reports" and remained "proud" of his work."
Grubman remained bullish and loyal to most of the companies he covered for months after they began to swoon. From September 1998 to June 2001 he recommended the purchase of Global Crossing Ltd shares -- a telecommunications firm that Salomon helped take public in 1998 and that filed for Chapter 11 bankruptcy on Jan. 28. The stock slid 69 percent while he recommended it.
He cut his rating on WorldCom to "underperform" from "neutral" on June 21, four days before the company said it hid expenses and was firing Chief Financial Officer Scott Sullivan.
Grubman had a "buy" rating on the stock from 1997 through April 2002.
Grubman's US$32.2 million severance package includes forgiveness of a US$15 million loan he received in 1998 plus US$4 million in interest, people familiar with the matter said. The company is paying Grubman US$12 million for restricted stock and options he had received as compensation, the people said.
Grubman's lawyers also negotiated a cash payment of US$1.2 million over the next 18 months from Salomon. This represents the remaining compensation on his five-year contract, which was to end in September 2003, and a payment for his legal fees, the people said.
Members of Congress grilled Grubman last month in hearings about WorldCom's admission that the company inflated its earnings.
Grubman, who admitted attending WorldCom board meetings, said he hadn't known of the accounting tricks.
"This has been a very painful period for Mr. Grubman," said Lee Richards, his lawyer. "He has always loved his work as an analyst, but sadly in the face of constant reports that unfairly singled him out he cannot do that work at the level and to the standard he set for himself. Hence he has decided to leave Salomon Smith Barney."
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