Posted on 08/19/2002 3:51:01 AM PDT by Liz
PHOTO: Jack Grubman, who resigned from Salomon Smith Barney last week, is grilled by House Financial Services committee at hearings in July along with former WorldCom chief Bernie Ebbers (l.) and former WorldCom chief financial officer Scott Sullivan.
Jack Grubman, Salomon Smith Barney's telecom analyst who resigned last week, could have been Goldman Sachs' problem.
In mid-1998, just before Goldman became the last big investment bank to sell its own shares to the public, the firm lured away other big-name Salomon Smith Barney bankers, including mergers head Michael Carr.
Goldman tried but failed to land Grubman.
"They're lucky losers in that bidding war," said Jim Mitchell, a bank analyst at Putnam Lovell NBF. "You could imagine that it would have fallen on Goldman's shoulders if they hired him."
Back in 1998, Grubman was the toast of telecom. His close ties to some of the rising stars in the industry could give any investment bank that employed him millions of dollars in fees.
Now, the 48-year-old former star analyst, who will receive $1.2 million over the next 18 months as a part of Salomon Smith Barney's $32.2 million, five-year pay package, is the target of numerous investigations - including by Congress and the Department of Justice.
Salomon Smith Barney's parent company, Citigroup, has taken multiple hits to its image and stock price. Grubman's visible role as close confidante to top execs at bankrupt companies including WorldCom hasn't helped.
Compounded by potential losses in Brazil and Argentina and its role as an Enron banker, Citigroup's stock has fallen 31% this year, compared with a decline of 14% at Goldman Sachs.
To be sure, Grubman, who said he attended 10 board meetings of companies he was rating as an analyst between 1996 and 2001, might not have had the same role at Goldman as he did at Salomon Smith Barney.
If Goldman had hired Grubman, "he would have had to conform to the standards of practice and procedures" at Goldman, which could have been different than they were at Salomon Smith Barney, said Roy Smith, a professor of finance at New York University and former Goldman partner.
"Our research department does not operate with investment banking the way some other firms do," said a Goldman spokesman. "Analyst compensation is not tied to investment banking transactions."
Still, some said it would have been tempting to use Grubman's contacts to help win lucrative investment banking business. In September 1998, for example, Salomon Smith Barney made $32.5 million when WorldCom bought MCI Communications for $41.9 billion, according to Thomson Financial.
Some lawmakers have asked whether Grubman, who made $15 million in 1998, allowed his role as an investment banker to cloud his judgment as an analyst. Grubman had a "buy" rating on shares of WorldCom until the week before the company's first $3 billion fraud.
Congress has subpoenaed Salomon Smith Barney to see whether Grubman directed shares of hot IPOs to WorldCom execs.
Though Salomon is certainly on the hot seat, it might have been as hard for any firm to see the kinds of problems Grubman would bring to a company as it was to predict the telecom sector's demise, analysts said.
Duh.
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