NEW YORK — Citigroup Inc., which has been at the center of government probes into alleged Wall Street misconduct, said Wednesday it will create a new unit to house its stock research and retail brokerage operations, and has hired a well-respected executive to run the division.
The surprise move is aimed at eliminating the potential conflicts of interest that have sparked multiple government investigations of Wall Street's practices in the late 1990s, Citigroup said.
The unit, which will include more than 300 analysts and 12,500 brokers, will be headed by Sallie L. Krawcheck, a onetime stock analyst who had been running Sanford C. Bernstein & Co., a highly regarded independent research firm.
Krawcheck, 37, will report to Sanford Weill, Citigroup's chief executive.
Previously, Citigroup's research and brokerage chiefs answered to the head of the firm's Salomon Smith Barney investment banking unit.
Federal and state probes of brokerage practices during the bull market have shown that analysts at major firms, including Salomon, say they felt pressured to hype stocks to help their bankers win fee-rich corporate-financing business.
"We think this model of splitting off the [brokerage] business and the research product from the rest of the investment bank, and bringing in somebody who's had an incredibly long success record ... is a major advantage," Weill said in an interview at the financial services giant's Park Avenue headquarters.
Regulators have struggled in recent months with reform ideas that would insulate analysts from banking pressure. Major brokerages have been in intense talks with regulators over the last few weeks to reach a "global" settlement involving reforms.
Regulators initially considered forcing the companies to spin off their research units into stand-alone firms. But brokerages argued that analysis by itself is unprofitable, and regulators feared that a complete separation would reduce the amount and quality of research.
However, critics say that placing research under a new corporate designation within the same firm is only a cosmetic gesture.
Citigroup on Wednesday stopped short of implementing more dramatic changes that some critics say are needed, such as banning all interaction between analysts and bankers.
"I don't think this is a big structural reform," said John Coffee, a Columbia University securities-law professor.
