Citigroup to Require Reporting of Financing

Citigroup Inc. Chairman Sanford Weill, under pressure from lawmakers to reveal more about the company’s business dealings, said Wednesday that the firm will require corporate clients to make off-balance-sheet partnerships public. The financial services giant also said it will begin accounting for its stock options as an expense.

Corporate customers that decline to formally record a major Citigroup financing as debt on their balance sheets will have to agree to publicly disclose the amount of the financing, the effect it may have on the company and any provision that may accelerate repayment, Weill said in a memo to employees.

“Sandy’s back is up against the wall,” said David Hendler, a fixed-income analyst with independent research firm CreditSights Inc. “These are steps in the right direction.”

Citigroup and its biggest U.S. rival, J.P. Morgan Chase & Co., face congressional probes and more than $36 billion in legal claims related to their business with Enron Corp. before the energy trader collapsed in December.

At hearings last month, the banks’ executives disputed allegations that they helped Enron disguise debt with off-balance-sheet partnerships.

But congressional investigators said internal e-mails showed that Citigroup knew Enron was masking a loan structured as a so-called prepay transaction often used in financing commodities trades.

J.P. Morgan said it will follow Citigroup in requiring clients to make similar disclosures. “We haven’t announced a formal policy on this point yet, but our practice will be along the same lines,” said Joe Evangelisti, a Morgan spokesman. The bank is reviewing whether to expense stock options, he said.

“We believe our new policy will encourage companies to provide greater transparency than currently required by law and help restore investor confidence in our financial markets,” Weill said.

Citigroup also will insist that a client’s chief financial officer, independent auditors and chief attorney get a complete set of transaction documents.

Clients may not like Citigroup dictating what they must do, some investors said. “Some of them might take offense,” said Jim Luke, who manages $350 million at BB&T; Asset Management in Raleigh, N.C.

Meanwhile, Citigroup said that reporting options as expenses will cost the firm 3 cents a share in 2003 and 6 cents in 2008.

Citigroup shares rose $1.12 to $31.52 on the New York Stock Exchange, before the company’s policy changes were announced.