Citigroup Inc (NYSE:C) In The Era Of Volcker Rule


Dallas, Texas 12/17/2013 (FINANCIALSTRENDS) – For Citigroup Inc (NYSE:C) banking practices are all set to change. These changes have been introduced in aftermath of financial-bloodbath that affected nearly every key banking and investment institution. Though the categories of financial manipulations were different, the series in which they have since occurred have simply meant rules were all set to change.

From Citigroup and JP Morgan – on counts of foreign trading rates manipulation, to Bank of Corp their involvement in a major Mortgage Based Securities trading has been the setback of the last quarter. These banks were involved in intra-trading of these securities, where the likes of erstwhile housing financer Countrywide were previously involved. These banks misused two of the countries important mortgage bonds to earning firms through technical malpractices and failing to indicate the actual funds involved.

Citigroup Inc (NYSE:C) will definitely be under the scanner, as the Department of Justice continues its investigations.

That banks such as JP Morgan chose the short-cut to extricate themselves from the mess is a different matter altogether. They chose to make a settlement outside of the legal course and were not affected by the $13 billion and more, which the Department of Justice used to settle claims of Freddie Mae investors.

This will lead the way to the Department of Justice suing more banks which have dallied with MBS funds in the next few years. Hefty settlements, is perhaps the sole positive development for investors.

LA sues Citi

Additionally, allegations of ‘discriminatory lending’ rates to mortgage applicants, in cities such as Los Angeles by Citigroup and Wells Fargo have now been filed before courts. The city alleges that banking institutions are responsible for the loss of additional tax revenues they were eligible for, by lending at their discretion.


Volcker Rules was waiting to happen

There was no surprise when the Volcker rules were redrawn to offer better scope for minimizing the practice of Portfolio Hedging.

The new rules will not allow these banks to offer proprietary trading nor will they be eligible to hold funds whether in equity or private beyond 3%.

This will definitely place most of the trading financial institutions in a fix. They will not be able to engage in such processes as were earlier considered as part of the regulations- underwriting, hedging as well as marketing- against the risks involved.

Citigroup the way forward

For Citigroup the technical way forward on this front will now have new expertise. The company has just appointed Duncan Hennes, who once was CEO of various founds- Soros Fund Management, co-founder at Promontory Financial Group as well as treasurer at the Bankers Trust. This means Citigroup will be in able hands on its commitment to fulfil investor aspirations with regards to hedge funds or forex trading.

Further, keeping in line with Volcker’s Rule in place now, Citigroup has reworked its Metalmark Capital P-E unit. In an undisclosed sale, Citi has will no longer own Metalmark. However, the current team which is managing the investments at Metalmark will continue, with no changes being made at this stage.

Metalmark had $6 billion in P-E and more in hedge fund assets, along with $2.5billion in other assets. The sale-off will now ensure the company is well in place to be complaint with Volcker Rules, with respect to non-hedge fund portfolio as well as ownership of over 3% in any hedge fund.