Citigroup Goes for Gold Standard With Rubin Hire

In luring Robert Rubin, a former Wall Street star and a much-feted Treasury secretary, to its highest echelons, Citigroup (C) pulled off the brashest corporate appointment the financial industry has seen in years.

But while generally enthusiastic about Rubin's arrival, observers are struggling to understand exactly what the 61-year-old's role will be at the financial-services giant.

Citigroup Tuesday named Rubin chairman of its executive committee and appointed him to work alongside co-chairmen Sandy Weill and John Reed in a new three-person office of the chairmen.

Rubin, however, won't have control over, or responsibility for, a single business. During a press conference Tuesday, Rubin, Weill and Reed declined to specify on what areas in the firm Rubin would concentrate.

All of this raises the question: Will he act more like a constitutional monarch, sporting a lofty title but little in the way of real power? That arrangement could easily end up complicating the sometimes difficult relations between Weill and Reed, who serve as co-chief executives, observers say.

Or will he turn out to be the ace strategist, who will play an invaluable role in efforts to make Citi a pre-eminent financial-services supermarket? That, of course, is Rubin's intention. "I wanted to be part of an institution that I felt proud of. ... John and Sandy have extraordinary vision," Rubin said Tuesday.

Most observers agree that Rubin, who resigned from the Treasury in July, will be an extremely valuable representative for Citi, using his strong reputation, high-level contacts and agreeable manner to attract new business.

"He clearly gives the company insights into international strategy and economic events as well as a bunch of fresh connections," says Mike Mayo, banking analyst at Credit Suisse First Boston, which hasn't done any recent investment banking work for Citi.

"But this could be mitigated by having too many cooks in the kitchen," adds Mayo, who has been advising clients to sell Citigroup shares. "And if times become difficult, it's a question of who will be accountable."

In extremely heavy volume, Citi traded up 11/16, or 1.4%, Tuesday to close at 48 1/2, which is 3 bucks shy of its 52-week high.

It's important not to underestimate how important a name like Rubin's could be in gaining new business. "Rubin is a strong relationship builder," says Joan Solotar, an analyst at Donaldson Lufkin & Jenrette. (DLJ doesn't have an underwriting relationship with Citi and has a buy rating on the stock.)

Rubin probably will be able to help Citigroup, and especially its investment bank Salomon Smith Barney, become the powerful global investment bank it had originally envisioned at the time of the 1998 merger between Citicorp and Travelers, Solotar explains.

Despite a strong trading presence overseas, Salomon's other businesses generally don't rank highly in Europe and Japan, she adds. For example, Salomon ranked fourth in eurobond underwriting and seventh in euromarket equity underwriting in the third quarter, according to the firm.

In a report released Tuesday, Judah Kraushaar, banking analyst at Merrill Lynch, says Rubin will smooth relations between Weill and Reed and could even help facilitate a transition from the dual-CEO arrangement, which unnerves many investors. Rubin, who had a successful 25-year career at Goldman Sachs (GS), stressed Tuesday that he has no desire for the CEO position. (Merrill has no underwriting relationship with Citigroup and rates its shares buy.)

When asked during the press conference what challenges face the financial-services industry, Rubin named a number of areas, which may give some indication of what he'll concentrate on at Citi. He mentioned risk management, e-commerce and the benefits and problems of establishing market-based economies around the world.

But outside of investment banking, ambassadorial tours and arbitrating between Weill and Reed, some wonder where else Rubin can contribute. "There wasn't a big hole in management. Weill and Reed are two of the best financial CEOs around," says Scott Edgar, manager on the (SIFEX)SIFE Trust fund, which holds shares of Citi. "Rubin's appointment doesn't seem to add what the company was lacking, and it doesn't solve the problem of who will succeed Reed or Weill."

Edgar would like to see Citi increase the size and geographical reach of its domestic retail banking business. "I don't know that he necessarily brings any retail experience with him," he adds.

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