Gulf that cost Citigroup dear

PEOPLE used to think the major risk to a worldwide financial organisation was that of the rogue trader who broke all the rules, incurred huge losses and bust the bank - Nick Leeson and Barings for ever being the most famous example of the genre.

Recent goings-on at Citigroup have brought to the fore a new danger from what might be called the non-rogue trader - the guy who does what he is paid to do, behaves perfectly legally and in the process shreds the bank's reputation.

Anyone reading the Citigroup annual report cannot be impressed at the acres of prose devoted to explaining how it has to set itself standards above and beyond those that apply to ordinary mortals and financial institutions.

It knows it is the biggest in the world and that with this size comes a responsibility to behave to the highest standards. It assures us it will do just that.

Unfortunately, no one seems to have told the traders. The bear raid the bank launched earlier this month when it dumped more than £7bn of the bonds of several European governments might appear to be all in the day's work on the London trading desk but it has done untold damage to the bank's reputation, infuriated competitors and potentially disadvantaged clients whose bonds were trashed - and who would be wholly justified in not using the bank's services again.

The potential loss of business from outraged governments will surely exceed by many times any possible profit from the raid. But the real cost is that it makes the bank's leaders look out of touch with what their organisation does. And those who put their names to the fine words in the report - even to the extent of saying their word is their bond - look particularly foolish.

It would be fascinating to know at what level in the organisation authorisation for the trade was granted. Perhaps the spread betting firms could give a price on the number of days before heads start to roll and how high up the organisation retribution will strike.

For this is surely the next step. New York, astonishingly, has still failed to realise that it has a reputational crisis on its hands. When it does, it will no doubt take the advice of management guru Peter Drucker, who said the first rule in defusing a corporate crisis is to find a scapegoat. But it won't be enough.

There is not so much a lesson in this but a reminder. It tells us that despite all the supposed integration inside these giant organisations, bankers and securities people live in different worlds and have totally different cultures.

However profitable it might be in the short term to try to combine the two, the cultural gulf will always catch out the bankers in the end.

Aim high

ACCORDING to ADVFN, the highly thought-of financial website, there were 50 initial public offerings in London last month - a healthy total by any standards and one that surely gives the lie to the claim that the new-issues market is in the doldrums.

However, a closer examination, particularly when linked to the site's analysis of the 259 share issues over the past 12 months, reveals that this is only half the story. It is Aim, the Alternative Investment Market, that is booming. Only a handful of companies have come forward for a full listing.

A colleague of mine had a bet at the beginning of this year that by 2005 there would be more companies on Aim than on the main market. At the time it looked outrageous, but now with each passing month it looks more likely.

The trend in the main market is remorselessly down as more and more smaller companies decide the costs and governance hassles outweigh the benefits. Aim, in contrast, is on a roll.

Now if this were the United States, or even Frankfurt, such a success would be trumpeted from the rooftops, but in London the Stock Exchange, which owns Aim, seems, if not exactly embarrassed, certainly a little nonplussed. It would so obviously prefer the main market to be flourishing.

Unfortunately, its reticence means it may miss a major opportunity. Across Europe all the new markets of yesteryear - the Neue Markt in Germany, Easdaq in Brussels, Euro NM and all the others - have crumbled to dust. Only Aim has come unscathed through the bear market to provide stock exchange facilities for young, growing, dynamic companies. And this is the opportunity.

With the right marketing and committed support, Aim could fill the European void and become the 'Nasdaq' for Europe, rather than simply a UK phenomenon. But it requires the Stock Exchange to go for it.