THE TIMES (UK): Citigroup faces record FSA fine for bond deal: “The biggest fine to date imposed by the FSA was the £17 million levied against Royal Dutch/Shell, the oil company, last year for irregularities in its oil and gas reserves reporting.”: Posted 17 June 2005
By Caroline Merrell, Banking Correspondent
CITIGROUP, the US investment bank, is expected to be fined between £20 million and £30 million by the Financial Services Authority (FSA) over a controversial bond trade that shook the European bond markets last year.
The fine, which is to be announced within the next two weeks, will be the biggest imposed by the UK regulator. The fine is also expected to include a charge of €17 million (£11.4 million), equivalent to the profits that Citigroup made from the bond trade.
The bank, which has already been fined by the US regulators over conflicts of interest and exposure to Enron and WorldCom, is expected to be penalised over poor internal management controls, but will escape the more serious charge of market manipulation. The biggest fine to date imposed by the FSA was the £17 million levied against Royal Dutch/Shell, the oil company, last year for irregularities in its oil and gas reserves reporting.
The bank has apologised to its staff over the trades, but has always maintained that it was not guilty of market manipulation. On August 2 last year, Citigroup stunned the eurozone government bond market by selling €12.4 billion of government bonds in seconds, only to buy back €4 billion at a much lower price later in the day.
An internal Citigroup memo claimed that the dealing was part of a strategy aimed at reducing the influence of the Eurex derivatives exchange. The Citigroup traders that carried out the deal first chased up the price of the bonds on futures markets, before selling them through MTS, the trading platform, where the banks are forced buyers. The group of traders are suspended and could face fines.
Although the German prosecutors decided against pursuing a criminal prosecution Citigroup could still face sanctions by Eurex. If Eurex finds that Citigroup manipulated the market, it could exclude the bank and the traders from Eurex for a maximum of 30 days. It could also levy a €250,000 fine per trader involved, with a further €250,000 fine on the bank.
Citigroup, also come under fire last week, over an aggressive plan to poach brokers from Hoare Govett, ABN Amro’s corporate broking arm. Although Citigroup signed up only seven staff from 71, its tactic antagonised ABN Amro.
The bank also said last week that it would pay $2 billion to Enron shareholders who accused it of helping the energy trader in a massive accounting fraud. The move cleans up one of the bank’s main legal problems and could put pressure on others to settle the case. The settlement is the biggest in the Enron affair and one of the largest in corporate history.
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