Citigroup

(C) - Get Report

, under intense pressure from securities regulators, is moving to create a separate division for its stock research and retail brokerage. But with the division still owned by a parent that relies heavily on investment banking, it's hard to see how the move will result in anything more than cosmetic autonomy.

The nation's largest financial services firm said Wednesday that a corporate reshuffling at its Salomon Smith Barney investment bank will create an "independent" stock research division, addressing the main concerns regulators have raised about housing investment banking and stock research under the same roof.

"Our new structure is consistent with the goal of assuring the impartiality of research, which we share with regulators," said Citigroup Chairman and Chief Executive Sanford Weill in a prepared statement.

Citi is bringing in Sallie Krawcheck, the chief executive of Sanford Bernstein -- a respected Wall Street research firm -- to run the new division. A recent cover story in

Fortune

magazine touted the 37-year-old Wall Street wunderkind as one of the "last honest analysts."

(But by at least one measure,

the sell rating, Solly has Krawcheck's old firm beat.)

Render Unto Caesar

Just how independent the new division will be remains an open question.

That's because the new research and brokerage division legally will remain part of Salomon Smith Barney. And that leaves open the possibility that revenue generated from Salomon's investment banking deals may still go to pay for some of the operational costs at Smith Barney, including a portion of the analysts' salaries.

One criticism of Wall Street is that as long as a research analyst knows a portion of his salary is being paid with investment banking dollars, there will always be pressure to go easy on stocks with investment banking deals with his employer.

"It's an improvement but it appears conflicts will still exist," said Scott Cleland, the president of an association of so-called independent stock research firms that don't do investment banking work. "It all depends on the source of your funding. You either get paid by investors or by companies. It's human nature to respond to the interests of who pays the bills."

Also, it doesn't appear that Citi is ready to prohibit its analysts from continuing to have some contacts with its investment bankers. Even though Krawcheck will report directly to Weill under the new arrangement, the press release is silent on the subject of what kind of interaction investment bankers and analysts can still engage in.

Global Settlement

The surprise announcement from Citi, meanwhile, comes a day before officials from Citi and other big Wall Street firms are expected to meet with regulators and give their preliminary approval to an industrywide arrangement for providing investors with greater access to more objective and independent stock research.

Under that plan, unveiled last week by the New York attorney general's office and the

Securities and Exchange Commission

, the nation's biggest securities firms would have to pay up to $1 billion over five years to subsidize research firms that don't do investment banking. Wall Street also would have to make research reports produced by independent firms available to their brokerage customers.

Ironically, one of the beneficiaries of that plan could be Bernstein, the place Krawcheck is leaving to head up the new Citi division. Bernstein, a division of

Alliance Capital

(AC) - Get Report

, is one of the shops winning kudos from regulators and Wall Street critics because it doesn't do investment banking. Rather, Bernstein generates revenue from selling its research to institutions and managing money for wealthy investors.

It doesn't appear that the moves at Citi, however, will deter regulators from continuing to press for that industrywide solution and the imposition of what some on the Street are referring to as a "research tax." Spitzer's office was unavailable for comment.

Michael Mayo, a Prudential Securities bank analyst with a sell rating on Citi shares, says it's not yet clear whether the bank's action will satisfy the regulators looking into conflicts of interest at Salomon. But he said from a legal liability standpoint, the analyst controversy is a "sideshow" to the potential billions of dollars Citi may have to pay out to settle the lawsuits and investigations stemming from its role in the collapse of

Enron

and

WorldCom

.

Kingsfield

But what is clear is that Citi is going out of its way to portray the move as something revolutionary.

The headline on its press release trumpeting the announcement reads: "Equity research will be independent from corporate and investment banking and underwriting." And stealing a page from the past, Citi will call the new brokerage and research division simply "Smith Barney" -- reviving the name of one of Wall Street's most storied retail brokerage operations.

In dropping the Salomon name, Citi may be also trying revive memories of those old television ads, in which the actor John Houseman exhaled: "We make money the old-fashioned way: We earn it." That's an image Wall Street would welcome back.