Calif. Pension Fund Targeting Citigroup

By THE ASSOCIATED PRESS

Published: April 19, 2004

Filed at 4:58 p.m. ET

NEW YORK (AP) -- Citigroup's annual meeting could be contentious this year with the California Public Employees' Retirement System, the nation's largest pension fund, pledging to withhold its votes for more than half of Citi's directors.

As part of its wider push for improvements in corporate governance, CalPERS is targeting five directors who sit on Citi's audit committee because Citi's auditor, KPMG, in the past did nonaudit work for the bank. And CalPERS has singled out three others on the 15-persons board for what it terms improper behavior, including chairman Sanford I. Weill.

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The action by the California pension fund is unlikely to bring down Citi's board or its management team, since the fund holds less than 0.5 percent of Citi's shares and does not seem to have drawn a groundswell of support for its positions.

And Citi's financial performance has been solid, which generally satisfies shareholders. Last week, Citi reported earnings of $5.27 billion, or $1.01 a share, for the first quarter -- its fifth consecutive quarter of record earnings.

Still, Citi likely will have to field more questions from shareholders when they gather on Tuesday at Carnegie Hall.

Brad W. Pacheco, a spokesman for CalPERS, which is based in Sacramento, Calif., said Citi is one of about 2,700 companies the pension fund has singled out this year for criticism of its audit policies. Corporate governance experts see the potential for conflict of interest when a single firm provides both audit and management consulting services.

Citi spokeswoman Leah Johnson said CalPERS' decision to withhold their support for the directors is ``unwarranted.''

She said the bank adheres ``to the highest standards of corporate governance'' and added: ``We do not believe there is a basis for withholding votes on the grounds of conflict of interest or for any other reason for any directors.''

Orin Kramer, chairman of the investment council for the $76 billion New Jersey pension system, said that while CalPERS ``historically has done a tremendous job on governance issues,'' its current campaign goes too far.

``If we've moved to the point of having a rigid checklist on corporate governments, which tells us that we're supposed to reject a Warren Buffett (from the Coca-Cola board) and half the Citigroup board, then the rules have taken precedence over the purpose of the game,'' Kramer said.

Meanwhile, Patrick McGurn, senior vice president for the proxy advisory firm Institutional Shareholder Services in Rockville, Md., said his group recommends votes ``for'' the re-election of all Citi board members and approval of KPMG as auditor.

CalPERS has recommended a vote against renewing Citi's contract with KPMG, its auditor since 1969.

The pension fund also singled out Weill, chief executive officer Charles Prince and Roberto Hernandez Ramirez, chairman of Citi's Mexico banking subsidiary, for criticism.

Weill, 71, who built Citi into the nation's largest financial institution through a series of mergers, was CEO from 1998 until last October. CalPERS said he should be replaced on the board by an independent director because he played ``a significant role in several scandals to negatively impact the company.''

In opposing Weill's re-election, CalPERS has been joined by several other Citi investors, including New York state comptroller Alan G. Hevesi, who supervises New York state's pension fund. While shareholders can withhold support for Weill, he is running unopposed and will be re-elected.

Hevesi ``has some issues about Weill's performance ... and about director independence,'' said Hevesi spokesman John Chartier.

Citigroup paid the highest penalty of any Wall Street firm -- $400 million -- last year to settle charges that its Smith Barney unit issued fraudulent and misleading research. Citigroup was one of 10 firms that together paid a total of $1.4 billion to settle with securities regulators.

CalPERS alleges that Prince and Ramirez have family conflicts. Prince's wife, they note, is a partner in a law firm that provides legal services to Citi, and members of Ramirez's family reportedly were among investors who purchased shares in a company sold off by his Citi subsidiary, Banco Nacional de Mexico.

On the audit question, Citi points out that the board adopted a resolution effective Jan. 1, 2003, banning its primary auditor from nonaudit services.

Last year, Citi said, KPMG earned about $100,000 for nonaudit services ``that were contracted prior to Citigroup's adoption of its policy.''