Story updated with additional analyst comment.
Citigroup reportedly shut down its Quantitative Strategies fund, a $400 million hedge fund , according to a Bloomberg report. The article states that the fund was shut in April after the fund manager, Shakil Ahmed, moved to the position as the head of electronic market-making for Citigroup.
"This really is not a surprise. Under [Dodd-Frank Wall Street Reform and Consumer Protection Act] and Volcker Rule they would have had to get rid of prop trading anyway," says RBC Capital Markets analyst Gerard Cassidy, who has a, "buy" rating on Citigroup. "They will continue to sell or shut down funds that are part of Citigroup Holdings.""We have figured that Citigroup will lose 26 cents to 50 cents per share for implementing Dodd Frank, which will bring the normalized earnings down to $6.50 from $7.00," Cassidy adds. According to Citigroup Capital Advisors website there are two other funds in the equity group: the Financial Partners Fund run by Manu Rana and the Event Driven Team run by Mukesh Patel. Citigroup would not confirm or deny reports that the hedge fund was shut down. "Citi Capital Advisors is a highly valued part of our core franchise and our platform continues to grow with substantial investor interest, including over $1.7 billion of new investor commitments in 2010 and 2011 year-to-date," a Citi spokesperson says. Sterne, Agee & Leach analyst Todd Hagerman said he believes that Citigroup will shut down all of Citi Capital Advisors. "At the end of the day, with the incremental business costs, it just doesn't make sense for Citigroup to operate the fund," said Hagerman. "I think they will shut down the whole thing. Banks like Citigroup are deleveraging due to Basal requirements." Other banks such as Bank of America (BAC), JPMorgan Chase (JPM), Goldman Sachs (GS) and Morgan Stanley (MS) have also been shutting down prop trading desks. Goldman Sachs shut down a prop trading desk called Global Macro earlier this year. Morgan Stanley said it would spin off a proprietary trading unit called Process Driven Trading (PDT) into an independent firm in January. JPMorgan and Bank of America shuttered their prop trading desks in 2010. --Written by Maria Woehr in New York.
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