US finance giant Citigroup is dumping the boss of its investment banking arm, Salomon Smith Barney, amid allegations of biased research and skulduggery in its corporate finance operations.

The company said that Salomon's current chief operating officer, 23-year Citi veteran Charles Prince, will take over from chief executive Mike Carpenter.

"As a result of recent events we have recognised that we need to re-examine our business practices and make appropriate changes," said Citigroup's chief executive, Sandy Weill, in a statement.

"Although we have found nothing illegal, looking back, we can see that certain of our activities do not reflect the way we believe business should be done.

"That should never be the case, and I am sorry for that."

Off the top

The changeover is effective immediately, and pushes Mr Carpenter - once seen as a potential heir to the whole group - into Citigroup's smaller and less public proprietary investment arm.

Until recently, he was seen as a potential heir to the whole group. Sandy Weill, who took his Travelers insurance group and welded it with Citibank into today's Citigroup in a $140bn mega-merger in 1998, is already well past normal retirement age.

The move is the second time Mr Carpenter has been ejected from the top table of an investment banking operation.

In 1994, he was forced out of his chief executive position at Kidder Peabody & Co, when it was hit with a bond trading scandal that put it out of business.

Eye of the storm

Salomon, the venerable merchant bank which Travelers had absorbed in 1997, is at the centre of the scandal surrounding the banks which were closest to disgraced energy trader Enron.

In the wake of Enron's collapse, Congressional investigators said that Citigroup - with JP Morgan - was closely tied into the way Enron apparently disguised its debts through offshore subsidiaries.

Unfortunately for Citigroup, Salomon is also implicated in the great telecoms collapse.

Its star telecoms analyst, Jack Grubman - now an ex-employee - allegedly inflated his ratings on companies such as now-bankrupt Global Crossing to help his employers win corporate finance business.

The bank also stands accused of offering multi-million-dollar windfalls to favoured clients such as WorldCom CEO Bernie Ebbers by letting them in on the ground floor of favoured tech stock issues - also in exchange for investment banking business.