Observers are split about Citigroup Inc.'s decision to help investors with losses they incurred by investing in certain Smith Barney funds.
Jeffery Harte, a Sandler O'Neill & Partners LP analyst, said the fact that Citi is supporting its customers is a positive.
Smith Barney, Citi's retail wealth management unit, "is a big business, and it's a good business, so I am not surprised they try to keep investors happy," he said.
But the decision to absorb at least some of the losses of hedge funds sold by Smith Barney and managed by the $2.2 trillion-asset Citi's alternative investment unit raises questions about whether other investors will be bailed out.
"That's probably why it was a tough decision" to help those customers, Mr. Harte said.
Geoffrey Bobroff, the president of Bobroff Consulting Inc., agreed with that assessment.
"It does set up some concerns about a lot of things they sold over the years," he said. "There could have been some problems with that particular problem or hedge fund" that would explain Citi's action.
The Wall Street Journal reported Tuesday that, to recoup some of Smith Barney customer losses, Sallie Krawcheck, the head of Citi's asset management business, pushed her company to set aside $250 million to support an unspecified number of funds.
A spokesman for Citi would not comment on the report. When asked whether Citi is vulnerable to requests from other investors, he said, "We always try to do what's best for our clients and advisers."
A. Robert Zeff, a Smith Barney customer, filed a class action April 4 in the U.S. District Court for the Southern District of Florida, alleging he was not appropriately informed about the risk he was taking by investing in certain hedge funds.
In its first-quarter earnings report, Citi disclosed "a reserve related to facilitating the liquidation of investments in a Citi-managed fund for its clients, and increased customer activity."
