Citigroup Gets Back on the Horse
NEW YORK (
) -- Proprietary trading at
Citigroup
(C) - Get Report
is dead. Long live proprietary trading!
That's right,
Bloomberg News
reported Tuesday that Citigroup is considering raising capital and trading limits for one of its proprietary trading units, citing statements by Kevin Russell, head of equities trading for the Americas. Russell made the statements both internally and to outside firms that support the unit, the
Bloomberg
report stated, citing "people with direct knowledge of the matter." A call to Russell wasn't immediately returned. A spokesperson for Citigroup declined comment.
The
Bloomberg
story also stated that Citigroup will replace "some or all" of six proprietary trading and analyst positions that became vacant after executives in a unit led by Matt Carpenter followed their boss out the door.
Carpenter and his deputy, Matt Newton, left Citigroup
for hedge fund
Moore Capital Management
partly due to concerns about the Volcker Rule, a wide-ranging proposal by President Obama that includes a ban on proprietary trading, the
Bloomberg
report states.
Like other big banks with extensive broker-dealer operations such as
Goldman Sachs
(GS) - Get Report
,
Morgan Stanley
(MS) - Get Report
,
JPMorgan Chase
(JPM) - Get Report
and
Bank of America
(BAC) - Get Report
, Citigroup has several trading units. Some are specifically mandated to bet the banks' capital where they see opportunities, while others have more of a client focus.
Citigroup has said proprietary trading accounts for a very small percentage of its revenues -- one Citigroup executive told me recently it accounted for about 2% of the total. Even Goldman Sachs, which most people see as having the biggest proprietary trading orientation among large U.S. banks, told analysts during its fourth-quarter conference call that proprietary trading accounted for only about 10% of the firm's revenues.
Still, banks have endless wiggle room when throwing around numbers like these, as it is extremely difficult, if not impossible, to pin down where proprietary trading begins and client-oriented business ends.
Recent financial services reform legislation proposed by Senate Banking Committee Chairman Chris Dodd (D., Conn.) would give regulators authority to ban proprietary trading at banks. However, it is not hard to imagine banks will find a way around any prohibitions.
Citigroup CEO Vikram Pandit told Congress earlier this month that proprietary trading is not a big part of the business. "You're using the company's capital, and I don't believe you should use, banks should use capital to speculate that way," he told legislators, according to the
Bloomberg
report.
But we all know talking to Congress is one thing, and running a business is another. Can we really expect Pandit, a former Morgan Stanley executive who ran his own hedge fund, to live by those words? Don't be ridiculous.
One Citigroup sympathizer I spoke to today tells me proprietary trading has never been a big part of Citigroup's business and there are no plans to make it so. These plans reported by
Bloomberg
are just restaffing, he tells me.
What about all those billions in losses in the fourth quarter of 2007, I ask him.
That was client business, he says. No one says that isn't risky.
So I went back and looked at a
recent story I did on proprietary trading losses
, where I went through various bank filings to see how banks disclosed them.
Turns out Citigroup recorded negative revenues of $16.9 billion in the fourth quarter of 2007 in a division it called Fixed Income Markets. In a footnote, Citigroup stated "lower revenues due to write-downs on non sub-prime securitized products and in fixed income proprietary trading."
For my money, whether you call it proprietary trading or not, investing in Citigroup means taking big trading risks. But, for the record, whatever Citigroup wants to call it these days, it was once called proprietary trading.
--
Written by Dan Freed in New York
.
