Citigroup comes under attack for its use of corporate funds
By Kevin Smith, Staff Writer© Pasadena Star-News, January 27, 2008
Sometimes, perception is everything.
And the perception surrounding Citigroup's plan to buy a corporate jet for $50 million is not good - particularly in light of the fact that the company recently received $45 billion in federal bailout money.
On Monday the financial firm announced it will not take delivery of the Dassault Falcon 7X jet. The pullback came a day after a New York Post report said the bank was intending to buy the plane. The news fueled a chorus of concerns from politicians who are worried about how banks that have received federal funds are spending the money.
And it has drawn sour reviews from the Southland's business community.
"Obviously, it's obnoxious - as obnoxious as the guys from Chrysler and GM showing up in their corporate jets to ask for money," said Christopher Thornberg, a principal with Beacon Economics in Los Angeles. "The perception is ridiculous. You don't need a private jet. They can fly commercial like the rest of us."
But Larry Harris, a professor of finance at the USC Marshall School of Business, said executives from large firms like Citigroup have a "definite need" for corporate jets.
"There should be no question in people's minds that corporate jets are appropriate for large corporations because the managers' time is very important," he said. "It's frequently necessary for them to travel to do business and you don't want one of your scarcest and most valuable resources to be sitting in an airport lobby."
Harris acknowledged, however, that perceptions can be damning.
"Corporations that are buying new jets and taking money from the government are not sensitive to current political realities," he said. "This is not a fatal indictment of the management of Citigroup ... but they could have leased jets. This is not the time to be pissing off congressmen."
In a statement issued late Monday, Citigroup said it had placed a deposit in 2005 to acquire a new corporate jet. The New York-based bank noted that any cancellation of the deal would likely lead to millions of dollars in penalties.
A deposit on the jet will be lost, but is recoverable once the jet is sold, according to a person familiar with situation.
Gary Kaplan, president of Gary Kaplan & Associates, a Pasadena-based executive search firm, said CitiGroup's actions appear to be part of a larger and more pervasive breakdown of corporate ethics in America.
"I have significant concerns about what I see has transpired in comtemporary times in terms of playing loose with values," he said. "There's been a deterioration of values in many corporate cultures. You get a sense that many of these organization are not as concerned with investors and their employees as they should be."
Citigroup isn't the only high-profile case to come under scrutiny.
On Tuesday the New York attorney general issued subpoenas to former Merrill Lynch chief executive John Thain and Bank of America's chief administrative officer, J. Steele Alphin, amid an investigation into bonuses Merrill paid executives just before being sold to Bank of America.
Kaplan said some corporate executives have carved out a clear - yet skewed vision - of entitlements they feel they are owed from their respective companies.
"It's about lining your pockets, taking care of your key lieutenants ... and living a life of royalty," he said.
The Associated Press contributed to this report.
