From Today's Wall Street Journal article on Citigroup's first quarter earnings:
When one Citigroup Inc. unit sneezes, another seems to catch a cold.
The phenomenon was on display Friday, as Citigroup reported that first-quarter profit in its wealth-management division, long considered a crown jewel of the financial empire, fell 33%, dragged down by the poor performances of internal hedge funds that were ravaged by turmoil in the credit markets . . .
Brokers in the wealth-management group had been peddling the hedge funds, run by Citigroup's alternative-investments division, to their clients. When the funds incurred steep losses, the wealth-management group moved to help the investors exit their positions. The bill: $250 million . . .
Led by Sallie Krawcheck, the wealth-management unit has been highly profitable, fast-growing and seemingly immune to the woes afflicting other parts of the company. In recent speeches to employees, Mr. Pandit has hailed the unit as one of Citi's finest.
In the first quarter, though, the division's profit tumbled to $299 million from $448 million a year ago and $523 million in the fourth quarter.
The problems stemmed in part from choppy stock markets, which tend to keep retail-brokerage customers on the sidelines. Further depressing results, some of the hedge funds that Smith Barney and the private bank offer to clients racked up losses.
In three families of hedge funds, Citigroup this year has either had to inject its own capital to stabilize the funds or barred investors from withdrawing their money. All three fund groups have struggled to stay afloat due to their overexposure to the credit markets.
Losses in those funds infuriated Citigroup brokers, who have been bombarding Ms. Krawcheck and Edward Kelly, the new head of Citigroup's alternative-investments unit, with angry missives.
Seeking to pacify clients, Ms. Krawcheck and Mr. Kelly have started waiving fees on some funds. The wealth group also set aside $250 million in the first quarter to help clients liquidate their positions in Citigroup's Falcon fund group, which was burned by big bets on some of the hardest-hit areas of the credit markets.
Longer-lasting damage may lie ahead. People inside the wealth-management unit said they expect the debacle to cost them some of their most lucrative clients. They also worry that frustrated financial advisers may bolt.
Mr. Crittenden said in the interview that Citigroup is working with the company's financial advisers to help contain fallout.