Weill to Step Down as Chief Exec at Citigroup

Sanford I. Weill, the legendary head of Citigroup Inc. whose reputation was dented by the recent stock-analyst scandal, said Wednesday that he would step down in January as chief executive of the financial services giant.

Charles O. Prince, head of Citigroup’s investment banking unit and a longtime Weill confidant, will become CEO. Citigroup President Robert B. Willumstad, who had been a candidate for the top spot, will become chief operating officer and oversee all major businesses except investment banking.

Weill, 70, will remain chairman until 2006. He indicated that he would stay closely involved in the company he built.

“I’m grown up enough to not get in the way of the authority that [Prince and Willumstad] have to have,” Weill said. “But my brain won’t stop, so I think they know where I can be helpful.”

Weill’s retirement has been long anticipated. He was said to be reluctant to give up his perch atop the world’s largest financial services company. But some Citigroup board members had agitated for a succession plan.

Observers said the timing of the announcement was calibrated to show that Citigroup is on solid footing despite the stock-analyst furor and the thicket of investor lawsuits it spawned.

Citigroup has posted strong earnings in spite of the bear market and sluggish economy, and said Monday that it would boost its dividend by 75%. On Tuesday, Citigroup returned to the acquisition game, unveiling a $3-billion deal for the credit card business of Sears, Roebuck & Co.

By announcing the changes in the executive suite now, three months after Citigroup and nine other brokerages agreed to a $1.4-billion settlement with regulators over conflicts of interest among research analysts, Weill can claim that his decision wasn’t forced by outsiders.

“Sandy is clearly concerned about his legacy and wants to leave on top and at a time of his own choosing,” said Arthur Levitt, a former Securities and Exchange Commission chairman who once worked with Weill.

Citigroup’s stock fell $1.31 to $45.52 in New York Stock Exchange trading Wednesday.

Though Prince had been one of a handful of possible successors, his selection surprised some outsiders. He is thought to have limited operational experience, and was little known until he took the reins of Citigroup’s troubled investment banking unit last year.

Willumstad, by contrast, has headed the vast consumer-banking unit that has been Citigroup’s main profit engine amid the drought in mergers and stock offerings. The firm expanded in California last year by buying San Francisco-based Golden State Bancorp, parent of California Federal Bank.

Nevertheless, Prince’s longtime friendship with Weill helped him. In addition, Prince is a lawyer, which could be a benefit during the legal assault by investors.

“I’m excited. I’m terrified,” Prince said. “There isn’t going to be another Sandy Weill. We’re not going to try to be the next Sandy Weill.”

Through furious deal-making and fierce boardroom infighting, Weill fashioned a reputation as one of Wall Street’s most visionary yet controversial leaders.

His biggest achievement was marrying his Travelers Group Inc. insurance company to New York bank Citicorp in 1998.

“He’s been the financial services king,” said Paul Fusco, an analyst at John Hancock.

Weill, who started on Wall Street as a runner in 1955, launched his first firm in 1960 with three friends and a $30,000 loan from his mother. A decade later, he bought a larger firm that was in trouble -- a formula he would use many times.

Weill suffered a public defeat in the early 1980s after his company was acquired by American Express. Weill quit after clashing with his boss, reemerging the next year at a lesser-known consumer finance company.

But once again, he set to gobbling up larger targets. In 1988, he bought Primerica Corp. and its Smith Barney brokerage. In the 1990s, he acquired the huge insurance company Travelers and later investment house Salomon Bros.

Throughout his career, Weill drew almost as much attention for high-profile spats with colleagues as for his mega-mergers.

Weill seized sole control of Citigroup after a tense boardroom standoff against Citicorp counterpart John Reed.

Weill also had a falling-out with onetime protege Jamie Dimon. Weill and Reed asked Dimon to resign amid frictions after the Citigroup merger.

“I’m not sure if the success [Weill] ultimately had was in spite of, or because of, those incidents,” said Wall Street veteran Michael Holland.

Despite his star status, Weill suffered a black eye last year during the scrutiny of analysts. New York Atty. Gen Eliot Spitzer investigated whether Weill coerced telecom analyst Jack Grubman to upgrade AT&T; Corp. stock to win investment-banking work. Grubman wrote an e-mail message claiming Weill helped get Grubman’s children into an exclusive Manhattan nursery school after the rating boost. Weill denied wrongdoing.

Spitzer never brought charges against Weill, though Citigroup paid the largest amount, $400 million, in the settlement.

This year, Weill withdrew his nomination to be a “public” member of the New York Stock Exchange board after vehement objections from Spitzer.

The episodes won’t destroy his reputation, but will put an asterisk next to it, some said.

“It’s sort of like Pete Rose,” said Anton Schutz, manager of the Burnham Financial Services fund, referring to the star baseball player scarred by a gambling scandal.

“Pete Rose did all these great things, and the last piece of news is not a great piece of news.”