Citigroup CEO names new executive team

NEW YORK, Mon Jan 7, 2013 — The new chief executive of Citigroup Inc. named two company veterans to lead its institutional and consumer businesses on Monday and set lines of command to give him more direct responsibility for executives than his predecessor.

CEO Mike Corbat said on Monday that investment banker Jamie Forese will be head of institutional business and co-president of the company with Manuel Medina-Mora, who will continue to oversee global consumer banking and Citi’s franchise in Mexico.

Corbat decided not to fill the post of chief operating officer, which was held by John Havens, who left when Corbat was named on Oct. 16 to replace Vikram Pandit as CEO.

In January 2011, Pandit had put Havens, a longtime ally from their days managing a hedge fund, in charge of day-to-day operations and assigned him responsibility for several managers so he could focus on broader goals.

The new organizational chart shows 13 managers under Corbat and includes chiefs of major business categories, executives who oversee four major regions and managers in companywide functions.

Supreme Court rejects workers’ 401(k) stock drop appeals

WASHINGTON, Mon Oct 15, 2012 – The Supreme Court refused on Monday to review a pair of cases against Citigroup Inc. and McGraw-Hill Cos. Inc. brought by thousands of employees whose retirement plans lost money invested in their employers’ stocks.

The high court, without comment, rejected the workers’ claims that the companies should not have offered their own stock in their retirement plans because of Citi’s subprime mortgage exposure and problems at McGraw-Hill’s Standard & Poor’s unit.

The Citigroup employees sued after the bank’s share price fell 52 percent from Jan. 1, 2007, to Jan. 15, 2008, when it reported an $18.1 billion subprime-related loss. They accused the bank of consistently playing down its exposure to subprime mortgages and other toxic debt.

In a similar case against McGraw-Hill, workers accused the company of violating its fiduciary duties by offering its own stock, despite problems with its Standard & Poor’s unit’s ratings practices.

The workers in both cases accused the companies of breaching their duties under the federal Employee Retirement Income Security Act of 1974, known as ERISA.

In a pair of rulings last October, the 2nd U.S. Court of Appeals in New York said the companies did not abuse their discretion in offering the stock and had no duty to disclose nonpublic information about how they expected the stock to perform.

Citigroup must pay investor $1.4 million for fund loss: panel

NEW YORK, Wed Sep 12, 2012 – A Citigroup Inc. unit must pay more than $1.4 million to an investor for losses tied to a municipal bond that was marketed as “safe,” but was steeped in risky derivative securities, according to an arbitration ruling.

Margaret Hill of New York City had requested more than $3.5 million in damages for losses stemming from Citi’s Rochester Municipal Fund, according to a Financial Industry Regulatory Authority arbitration award. She filed the case in 2011, alleging that Citigroup Global Markets Inc sold her unsuitable investments and misrepresented facts, among other things, according to the ruling, dated Sept. 5.

Hill initially owned individual municipal bond funds, but bought the Rochester Fund in 2007 after Citigroup recommended it as a “safe” alternative to her funds that would pay slightly more interest, according to Hill’s lawyer, Steven Caruso of Maddox, Hargett & Caruso, P.C. in New York. Instead, the fund consisted mainly of risky derivative securities and tobacco bonds, Caruso said.

The value of derivative securities depends on the performance of underlying assets which can wildly fluctuate. Hill lost $2.9 million when she sold the funds in 2009.

The case highlights questionable sales practices that can affect a range of investors. Wealthy investors, in particular, are often asked to defend their investment choices by brokerage lawyers in arbitration cases, said Caruso, because of a false assumption that they must have a deeper understanding of what they are buying than an average investor. Wall Street often mistakenly equates wealth with financial know-how, Caruso said.

A Citigroup spokeswoman was not immediately available for comment.

Citigroup must pay investor $1.4 million for fund loss: panel

NEW YORK, Wed Sep 12, 2012 – A Citigroup Inc. unit must pay more than $1.4 million to an investor for losses tied to a municipal bond that was marketed as “safe,” but was steeped in risky derivative securities, according to an arbitration ruling.

Margaret Hill of New York City had requested more than $3.5 million in damages for losses stemming from Citi’s Rochester Municipal Fund, according to a Financial Industry Regulatory Authority arbitration award. She filed the case in 2011, alleging that Citigroup Global Markets Inc sold her unsuitable investments and misrepresented facts, among other things, according to the ruling, dated Sept. 5.

Hill initially owned individual municipal bond funds, but bought the Rochester Fund in 2007 after Citigroup recommended it as a “safe” alternative to her funds that would pay slightly more interest, according to Hill’s lawyer, Steven Caruso of Maddox, Hargett & Caruso, P.C. in New York. Instead, the fund consisted mainly of risky derivative securities and tobacco bonds, Caruso said.

The value of derivative securities depends on the performance of underlying assets which can wildly fluctuate. Hill lost $2.9 million when she sold the funds in 2009.

The case highlights questionable sales practices that can affect a range of investors. Wealthy investors, in particular, are often asked to defend their investment choices by brokerage lawyers in arbitration cases, said Caruso, because of a false assumption that they must have a deeper understanding of what they are buying than an average investor. Wall Street often mistakenly equates wealth with financial know-how, Caruso said.

A Citigroup spokeswoman was not immediately available for com

Citigroup reaches $590 million settlement over CDOs

NEW YORK, Wed Aug 29, 2012 – Citigroup Inc. has reached a $590 million settlement of litigation accusing the bank of fraudulently concealing tens of billions of dollars of exposure to risky collateralized debt obligations heading into the global financial meltdown.

The settlement is one of the largest arising from the 2007-2008 crisis. It resolves claims that Citigroup failed to take timely writedowns on the CDOs, many of which were backed by subprime mortgages, and that shareholders suffered billions of dollars of losses once the risks were realized.

Citigroup in a statement called the accord “a significant step toward resolving our exposure to claims arising from the period of the financial crisis.” It said the $590 million is covered by existing litigation reserves.

The settlement covers Citigroup shareholders from February 26, 2007, to April 18, 2008, according to papers filed Wednesday in Manhattan federal court, and requires approval by U.S. District Judge Sidney Stein.

“Although plaintiffs believe that the defendants knowingly or recklessly misrepresented Citigroup’s CDO exposure and valuation, defendants have raised a host of factual and legal challenges, increasing the uncertainty of a favorable outcome absent settlement,” lawyers for the shareholders said in settlement papers.

Citi may take $6 billion charge on MSSB valuation: Barclays

NEW YORK, Tue Aug 7, 2012 – Citigroup Inc. may have to a take a charge of almost $6 billion in the current quarter on a markdown of its valuation of the retail brokerage business it owns with Morgan Stanley, Barclays Capital said.

The third-largest U.S. bank said last month that Morgan Stanley estimates the business, known as Morgan Stanley Smith Barney, is worth less than half as much Citi believes it is.

The disagreement came as Morgan Stanley tried to buy another 14 percent of the joint venture, beyond the 51 percent it owns.

Citi estimates the business is worth $22 billion, while Morgan Stanley pegs it at $9 billion.

The bank’s valuation reflected an extremely optimistic view of the future of Wall Street profits, setting up the possibility of a multi-billion charge.

A third-party appraiser will help set the final price in a process set to conclude at the end of August, with the sale slated to close by Sept. 7.

Smith Barney became part of Citigroup in 1998 when former Chief Executive Sandy Weill turned the bank into a financial conglomerate. The subsequent joint venture was forged in the financial crisis in January 2009 when Citi looked to raise capital and Morgan Stanley sought a stable source of revenue.

Barclays analyst Jason Goldberg, in a note to clients, also said the charge, if taken, would reduce Citigroup’s earnings per share by $1.30 in the third quarter.

Goldberg is rated five stars for the accuracy of his earnings estimates on Citigroup, and ranks second out of 24 analysts covering the stock, according to Thomson Reuters StarMine.

Analysts on average currently expect Citigroup to earn 97 cents per share, excluding items, according to Thomson Reuters I/B/E/S.

Goldberg, however, maintained an “overweight” rating and a price target of $46 on the stock.

Citigroup’s stock closed at $28.56 on Monday on the New York Stock Exchange.

New York lender sues big banks over alleged Libor manipulation

NEW YORK, Mon Jul 30, 2012 – A New York lender has sued a group of large banks on the panel that sets a key global interest rate, saying it was cheated out of interest income through alleged rate manipulation.
The lawsuit, filed last week in District Court in Manhattan, seeks class-action status on behalf of similar lenders.
Berkshire Bank, which is not connected to Warren Buffett’s Berkshire Hathaway, says borrowers were able to take advantage of artificially low interest rates because of the big banks’ “unlawful suppression” of benchmark rates.
Defendants named in the suit include Bank of America Corp., Barclays Plc., JPMorgan Chase & Co. and Citigroup Inc.
At least one other community bank has filed similar legal claims, a sign that the rate manipulation scandal is having a broad impact. The Community Bank & Trust of Sheboygan, Wisconsin, said in a lawsuit several months ago that alleged rate rigging had kept its interest margins artificially low. That lawsuit also is pending in District Court in Manhattan.
Berkshire Bank had $854 million in assets at the end of last year, according to its website. It has 10 branches in New York and one in New Jersey.
The reliability of the London interbank offered rate, or Libor, which underpins transactions worth trillions of dollars, has been rattled by the rate manipulation accusations. Libor is used to set interest rates on credit cards, student loans and mortgages.
Big banks already face an array of Libor lawsuits by some big investors and local governments. Bank defendants have said in court papers seeking dismissal of these lawsuits that plaintiffs have failed to show banks acted to restrict competition, even if rates were improperly stated.

Citigroup CEO Pandit and directors sued over executive pay

NEW YORK, Fri Apr 20, 2012 – Days after being rebuked by shareholders, Citigroup Inc. CEO Vikram Pandit and the bank’s directors have been sued by a shareholder accusing them of awarding outsized pay to top executives.

The complaint, filed Thursday in Manhattan federal court, said directors breached their fiduciary duties by awarding more than $54 million of compensation in 2011 to the executives, including $15 million to Pandit, though the bank’s performance did not necessarily justify it.

At Citigroup’s annual meeting on Tuesday, about 55 percent of shareholders participating in an advisory vote rejected Pandit’s pay package. That marked the first time that investors had rejected a compensation plan at a major U.S. bank.

That vote “has cast doubt on the board’s decision-making process, as well as the accuracy and truthfulness of its public statements,” said the complaint, brought by shareholder Stanley Moskal. “Absent this (lawsuit), the majority will of the company’s stockholders shall be rendered meaningless.”

Citigroup spokeswoman Shannon Bell said the lawsuit is without merit and that the bank will seek its dismissal, “consistent with court rulings in similar cases.”

“The board takes the shareholder vote on executive compensation very seriously and will consult with representative shareholders to better understand their concerns,” she added.

Citigroup quarterly profit falls; net income down 4¢ a share

NEW YORK, Mon Apr 16, 2012 – Citigroup Inc. reported lower first-quarter profit on Monday as the bank worked to contain expenses in the face of volatile capital markets.

The New York-based lender said net income was $2.93 billion, or 95 cents a share, compared with $2.99 billion, or 99 cents a share, a year earlier.

Earnings per share were $1.11 excluding the impact of accounting adjustments for changes in the value of the bank’s debt and that of its counterparties.

Revenue from its ongoing securities trading and investment banking declined 12 percent from the strong quarter a year earlier, but rose 65 percent from the weak 2011 fourth quarter.

“While the operating environment improved in the first quarter, there is still much macro uncertainty and we will continue to manage risk carefully,” CEO Vikram Pandit said in a statement issued by the company.

Citi shares were up 59 cents, or 1.8 percent, to $34 in premarket trading.

Morgan Stanley wants all of Citi Group venture-sources

NEW YORK, Fri Mar 23, 2012 – Morgan Stanley is interested in buying all of Citigroup Inc’s. stake in their wealth management joint venture this year in what could be a roughly $10 billion deal, said people familiar with Morgan Stanley management’s thinking.

Under the terms of the Morgan Stanley Smith Barney joint venture, Morgan Stanley will get an option starting May 31 to buy 14 percent more of the business from Citigroup, adding to the 51 percent stake it already has. It has options to buy the remaining portion in two more chunks through May 2014.

But both sides are beginning to suggest they would be interested in doing a deal for Citigroup’s entire 49 percent stake now instead of waiting for two more years, and have started behind-the-scenes posturing to negotiate.

Morgan Stanley and Citigroup spokespersons declined to comment on the potential for an accelerated deal.

Citigroup is carrying its stake in Morgan Stanley Smith Barney at a $21 billion valuation, while Morgan Stanley is carrying its stake at just shy of a $20 billion valuation. That means the 49 percent stake was worth $10.3 billion or $9.7 billion, respectively, as of Dec. 31.

While that might not be a large gap, investment bankers and analysts said Morgan Stanley is likely to come in with an initial lowball offer in the range of $15 billion, while Citigroup is likely to counter with a value of around $23 billion.

From Morgan Stanley’s point of view, Citigroup’s need to raise capital, as well as weak earnings and soft valuations for financial firms, should make it an eager seller.

The U.S. Federal Reserve this month denied Citigroup’s request to raise dividends after the bank failed its stress test. Citigroup is submitting a revised plan, which would either require a more modest dividend request or more capital. Selling its entire stake in Morgan Stanley Smith Barney would give it more flexibility to pay higher dividends.