Citigroup Inc. said it will begin accounting for employee stock options as expenses next year and has started telling corporate clients it will no longer arrange off-balance-sheet financing for them unless the structures are fully disclosed to investors.
The company said it is also setting up a board committee that will focus on corporate governance.
The initiatives were disclosed to employees Wednesday afternoon in a memorandum from Sanford I. Weill, its chairman and chief executive officer. Mr. Weill said that he and chief financial officer Todd Thomson signed oaths Wednesday certifying the accuracy of Citi's financial disclosures.
"Citigroup has always strived to be at the forefront of progressive industry change," Mr. Weill said in the memo. "We continue to review practices and policies and take action to make changes where appropriate."
Expensing options for all employees would have an estimated impact of 3 cents a share next year and 6 cents a share after five years, when the program would be fully phased-in, the company said.
The changes came just weeks after Citi suggested during its second-quarter conference calls that it would not expense options for all employees because their financial impact was already disclosed in filings with the Securities and Exchange Commission and readily available for investors to interpret. At the time Mr. Weill proposed expensing options for just the top five executives in the company.
But in the ensuing weeks, Citi has faced a barrage of bad press that has battered its stock, and top executives have been working to contain the damage. Citi shares rose 3.7% in trading Wednesday.
Citi has tried to position itself as the leader in industry reforms on research practices. When Mr. Weill changed his mind on the options issue, he immediately drew the praise of one of Wall Street's most venerable figures.
"I tip my hat to Sandy," said Warren Buffett in a telephone interview. "He is very early, and it's very meaningful what he does. I've heard from a couple of brokerage firms in the last couple of days that said they wanted to do this too, but they were waiting for the other guys to do it."
Mr. Buffett, the chairman of Berkshire Hathaway Inc., would not say whether he has been buying Citigroup shares lately.
Citi is battling on several fronts, including the Senate, where there have been investigations into its role as a lender to Enron Corp., and the activities of one of its technology research analysts, Jack Grubman. It also has to monitor its exposure to the uncertain economic conditions in Brazil.
Standard & Poor's said Wednesday that it would not take much more bad news for it to downgrade ratings on J.P. Morgan Chase & Co.'s debt, and that it was also watching Citigroup closely. S&P currently rates J.P. Morgan Chase's senior unsecured debt at AA-minus and issued a negative outlook in January. It also has an AA-minus rating on Citigroup's senior unsecured debt, but with a stable outlook.
Mr. Buffett said he also supported Citi's decision to stop arranging off-balance-sheet transactions for corporations unless they meet certain conditions.
Mr. Weill said in the memo to employees that Citi would execute such transactions only "if the company agrees to publicly disclose its impact to investors."
"We believe our new policy will encourage companies to provide greater transparency than currently required by law and help restore investor confidence in our financial markets," he said.
Citigroup said it will do the same in the future.
