The Lowdown: Can the angel of Wall St clear Citigroup's name?

Leo Lewis asks if Sallie Krawcheck's unblemished image can transform the tarnished reputation of equity research

It's getting dirty on Wall Street. The fallout from the burst market bubble has badly contaminated a lot of areas, but one has come out looking particularly grubby: it is going to take a very long time before the business of equity research regains its shine.

Since April this year, the world has been treated to an extremely public washing of Wall Street's dirty laundry. The New York Attorney General, Eliot Spitzer, began his crusade by exposing how Merrill Lynch analysts had allegedly tweaked their stock recommendations to suit the needs of their wealth-making corporate financiers. Within weeks, more big names – Morgan Stanley, Credit Suisse First Boston and others – were in the same guilty-looking picture.

At Citigroup, the mighty global investment house built by Sandy Weill, it was clear that Spitzer's hounds were also closing in fast on the compromised equity researchers. Weill saw the massive damage all this could do to his reputation, and company share price, and last week he snapped up Sallie Krawcheck, the cleanest name in town.

In the world of Wall Street research, Krawcheck is a force to be reckoned with. Even more so now as, at the age of 37, she is in charge of hundreds of analysts around the world and in effect the second-most powerful figure in the Citigroup empire – a post, she says, that she accepted in three seconds. Described by rivals at other banks as "a cross between the Pope and a pit bull", she recently won the accolade from Fortune magazine of being "the last honest analyst on Wall Street".

As chief executive of the research boutique Sanford C Bernstein, she was in charge of by far the best regarded of the truly independent analyst houses; it simply did not have any other business divisions that could influence the quality of research. Trading commissions followed, and under her stewardship of the group, revenues grew to a record $266m (£180m) in 2001.

Though an untarnished reputation is central to her move to Citigroup, it is already clear that Krawcheck will be much more than a public relations ornament; there is serious work to be done if Weill is genuine about the desire to insulate his analysts. The role she has been given is head of "Smith Barney", a newly separated research and private client brokerage unit that has had the "Salomon" – or "Sallys" as it is known among bankers – removed to really drive the message home. Her no-nonsense approach is further expected to dispel a running criticism of heads of research within integrated investment banking firms. As Michael Palmer, a director of Veritas Investment, says: "They have been reduced to the role of eunuchs, who lack sufficient clout within their firms to maintain independence."

The creation of the unit and the appointment of Krawcheck are typical of Weill's strategic navigation of regulators and lawmen. As well as having Jack Grubman, formerly one of Citigroup's high-profile analysts, under investigation, Mr Spitzer made it clear last week that he would not settle for any kind of fudge on the side of the investment banks. Big fines running into hundreds of millions of dollars are now seen as almost certain, but the Attorney General also made it clear has was prepared to "dig through emails for the next five years" if he was not satisfied that real clean-up efforts were being made. With the appointment of the squeaky-clean Kraw- check, Citigroup suddenly appears more committed than the rest of the Street.

"I am of the view that sunlight is the best disinfectant," she says in her disarming Southern-Belle accent. "So bringing in more sunlight on to what the analysts are doing and what the potential conflicts are is a very good thing. Like everything, as the pendulum swings, it tends to swing too far one way ... these reforms are costly, but on the whole this is change that's well needed."

The South Carolina-born Krawcheck is not a complete newcomer to Weill's stable. In her early career she worked as an analyst at Salomon Brothers, the company that, via several mega-mergers in the 1990s, formed the core of Citigroup. But her current reputation was built at Sanford C Bernstein, whose ranks she swiftly soared through after joining as an associate insurance analyst in 1994.

From the vantage point of a research house without ties, she was able to voice her criticism of the way companies and analysts behaved during the equity bubble, and frequently did so. "Having too many people with their eye in the wrong places and not doing the research that we need – we've seen where that can lead, which is a pretty sorry place for all of us," she says.

Krawcheck is convinced that the drive to push reform through Wall Street is being done for the benefit of retail investors. Merrill Lynch was the first in the firing line because so much of its huge customer base comprises small private investors. She believes that professional investors have always known what's been going on, and seen through the conflicts of interest. "None of my clients are saying 'you're kidding, my goodness! These analysts were in pitches on deals?'."

Despite the great respect she now commands, Krawcheck is quick to point out that the popularity of independent research was not always so high. The post-bubble outrage, she explains, has clouded the fact that Sanford C Bernstein's team of 45 analysts was often despised in the 1999/2000 era for its cautious stance on technology stocks; at the time, investors only really had an appetite for "buy" ideas.

The honesty of her research also won her few friends among the companies that fell under her microscope. "You have CEOs who call you up and scream at you," she says. "Rather than saying we're not going to get their business, they generally tell me how stupid our analysts are. And the more they tell you how stupid they are, the more you say, 'hmm, you know, maybe we're on to something'."

Even with the good name of Kraw- check on its books, though, observers are saying that Citigroup will have a tough time transferring her integrity to the whole brand. The company's statement on the exact operating terms of the new "independent" unit was vague, and has left asset managers complaining that it provides no assurances that the separation is "iron-clad". If there are worries, it will be nothing new to Krawcheck. As she says: "I have been nervous about work every day of my working career."