Citigroup May Face Eurex Suspension Over Trade
Feb. 4 (Bloomberg) -- Citigroup Inc., the world's largest financial-services company, may face a 30-day trading suspension by Eurex AG for a 12 billion-euro ($15.6 billion) trade in August that roiled European bond markets, the Hesse stock regulator said.
The Wiesbaden, Germany-based regulator oversees the Frankfurt stock exchange and Eurex, the world's biggest futures market. The bond trade by New York-based Citigroup is also being investigated by authorities in Britain, France and Italy.
The Hesse regulator is reviewing whether Citigroup ``violated stock exchange rules or hurt the confidence of other participants of Eurex Germany,'' spokesman Clemens Christmann said in an interview today. Should a violation be found, a three-member Eurex sanction committee could impose a suspension or a fine of as much as 250,000 euros, Christmann said.
Citigroup has been dogged by legal and regulatory setbacks in the U.S., Europe and Asia. The bank, which set aside $4.95 billion in 2004 to pay for legal claims, lost its private-banking license in Japan last year after regulators found the company failed to prevent money-laundering.
On Jan. 25, prosecutors in Frankfurt said they had opened a preliminary probe of six unidentified Citigroup employees for possible manipulation of government bond prices. The employees made a profit of $17.5 million on Aug. 2 when they sold 12.4 billion euros of government bonds, causing prices to fall, and bought back 3.77 billion euros of securities a half hour later, the Frankfurt prosecutor's office said.
The trades took place mostly on MTS SpA's electronic bond trading network, which had an average daily volume in August of between 12 billion euros and 13 billion euros, according to MTS spokesman Allan Malvar.
`Juvenile Remarks'
The Wall Street Journal reported yesterday, citing a report by a German financial regulator, that the six traders were executing a strategy dubbed ``Dr. Evil'' that intended to benefit from discrepancies in prices on the bond market and Eurex.
Citigroup, in a Feb. 2 statement, said the traders didn't aim to sell so many bonds and ``did not violate any applicable rules or regulations.'' The company said it regretted the ``inappropriate, unrealistic and in certain instances juvenile remarks'' some of the traders made before executing the trade.
Andrea Hurst, a Citigroup spokeswoman in London, declined to comment today. Frank Hartmann, a spokesman for Frankfurt-based Deutsche Boerse AG, which controls Eurex, also declined to comment.
Citigroup Chief Executive Officer Charles Prince, 55, said last month he wants to put such issues behind him to make Citigroup the most respected global financial services company.
``It's a key priority for this management team to take open issues off the table, to close out issues, and that's something that I feel good about doing,'' Prince said during an earnings conference call with analysts on Jan. 20.
ECB's Trichet
European Central Bank President Jean-Claude Trichet said in response to a question at a press conference in Frankfurt yesterday that European regulators should conduct as ``deep as possible'' an examination into the Citigroup trade.
The Financial Services Authority, the U.K.'s securities regulator, said on Aug. 18 that it was investigating Citigroup for ``unusual trading activity'' in the European government bond market. The investigation is still under way.
The Hesse stock regulator can punish the traders and Citigroup should the committee find that the bank has neglected internal organization standards, according to the regulator. The committee's decision can be appealed before the Frankfurt administrative court.
To contact the reporter on this story:
Corinna Budras in Frankfurt at cbudras@bloomberg.net
To contact the editor responsible for this story:
Eamonn Sullivan at esullivan@bloomberg.net.
Last Updated: February 4, 2005 09:15 EST |
