July 21, 2017

DealBook: Goldman, After Profit Doubles, Expresses Caution on Global Growth

Lloyd Blankfein, chief of Goldman Sachs, at the White House in February.Brendan Smialowski/Agence France-Presse — Getty ImagesLloyd Blankfein, chief of Goldman Sachs, at the White House in February.

6:24 p.m. | Updated The country’s improving economy gave a nice lift to second-quarter earnings at Goldman Sachs.

The bank posted profit on Tuesday that was twice what it reported in the period a year earlier, fueled by strong trading and investment banking results as companies looked to Goldman to arrange mergers and acquisitions.

Net income was $1.93 billion, or $3.70 a share, compared with $962 million, or $1.78 a share, in the period a year earlier. The performance beat analysts’ expectations for $2.82 a share, according to Thomson Reuters. Still, the results were not enough to propel Goldman shares higher. They closed at $160.24, down $2.76, or 1.7 percent. Investors, wondering if Goldman would be able to repeat the performance in coming quarters, opted to take some profit off the table rather than stick around and find out.

Related Links



Goldman itself, while expressing optimism about the United States economy, was cautious about growth globally. Harvey Schwartz, Goldman’s chief financial officer, said client activity improved during the quarter but was then damped a bit by “macro concerns” about countries like China.

“Ultimately our clients are assessing the broader global economy, specifically whether a recovering U.S. will offset potential slower growth in other economic regions,” he told analysts during a conference call.

Goldman’s results followed similar strong performances by JPMorgan Chase and Citigroup. Over all, Goldman’s revenue in the quarter rose to $8.6 billion, from $6.6 billion in the period a year earlier.

On Wall Street, the last couple of months were dominated by a sudden and sharp rise in interest rates after the Federal Reserve indicated it might wind down its big bond purchase program, which has helped the economy recover from the financial crisis.

A rise in interest rates can both help and hurt banks, depending on the businesses they are in. As rates rise, fewer borrowers are likely to refinance or buy a house, and that reluctance can cut into banks’ profit. Goldman, unlike its rival JPMorgan Chase, is not a big player in originating residential mortgages, but it does trade mortgages, and as rates increased, its revenue in this area fell. At the same time, the move by various central banks to raise rates ignited a flurry of currency trading, which helped Goldman and other banks.

On the analyst call, Mr. Schwartz, in response to a question, said investors needed to look into why rates were rising. If they are being driven by inflation, he said, that is more problematic than “returning to a normal world of more steady economic growth,” as many investors believe. “That is what we are rooting for,” he added.

Goldman Sachs

The surge in interest rates was felt most acutely in Goldman’s fixed-income, or bond, department. Net revenue in the unit was $2.46 billion, up 12 percent, reflecting what the company said was significant higher net revenue in currencies, credit products and commodities. Still, these increases were offset in part by significantly lower revenue in mortgages and interest-rate products.

The bank reduced the risk it was taking in products related to interest rates. The firm’s so-called value-at-risk in rates declined to an average of $59 million in the second quarter from $83 million in the period a year earlier and $62 million in the first quarter. Value-at-risk is a yardstick of the amount of losses that could be experienced in one trading day.

The firm’s annualized return on equity was 10.5 percent for the quarter, up from 5.4 percent in the period a year earlier. It was far below its performance in boom years like 2006, when its return on equity was 41.5 percent.

Revenue from investing and lending activities came in at $1.42 billion, up from just $203 million in the period a year earlier. The firm had a rather rocky second quarter in 2012, and its results in that quarter included a big loss on a significant investment in this unit.

Investment banking revenue rose 29 percent, to $1.6 billion, helped by significantly higher net revenue in debt and equity underwriting. Equity underwriting was a particular standout, jumping 55 percent, to $371 million. Debt underwriting rose 40 percent, to $695 million.

Goldman also disclosed that it had set aside $3.7 billion in the quarter for compensation, up 27 percent from the period a year earlier. The current accrual represents 43 percent of revenue, which is in line with other years. Banks like Goldman set aside compensation during the year but do not pay it out until they determine earnings for the full year.

Over the last year, Goldman has reduced its payroll to 31,700 employees, down 2 percent from the period a year earlier, as the firm continues to focus on cutting costs.

On the call, analysts also pressed Mr. Schwartz to disclose how close Goldman was to meeting leverage ratio requirements proposed recently by regulators — 5 percent for the big bank holding companies and 6 percent for insured deposit-taking subsidiaries. The leverage ratio calculates capital as a percentage of assets held as a buffer against losses when investments go bad.

“Our first assessment is we’re very comfortable with where we are,” Mr. Schwartz said. Not satisfied, a Morgan Stanley analyst, Betsy Graseck, took another run at the question. “What is your definition of comfortable?” she asked.

“Comfortable,” Mr. Schwartz responded. “I’m not trying to be cute with you. Look, it’s just come out. Our team has looked at it. Our early read is all of the things we’ve done on the balance sheet over the past several years have left us reasonably well positioned.”

Article source: http://dealbook.nytimes.com/2013/07/16/quarterly-profit-doubles-at-goldman-sachs/?partner=rss&emc=rss

Common Sense: S.E.C.’s New Chief Promises Tougher Line on Cases

In a departure from long-established practice, the recently confirmed chairwoman of the Securities and Exchange Commission, Mary Jo White, said this week that defendants would no longer be allowed to settle some cases while “neither admitting nor denying” wrongdoing.

“In the interest of public accountability, you need admissions” in some cases, Ms. White told me. “Defendants are going to have to own up to their conduct on the public record,” she said. “This will help with deterrence, and it’s a matter of strengthening our hand in terms of enforcement.”

In a memo to the S.E.C. enforcement staff announcing the new policy on Monday, the agency’s co-leaders of enforcement, Andrew Ceresney and George Canellos, said there might be cases that “justify requiring the defendant’s admission of allegations in our complaint or other acknowledgment of the alleged misconduct as part of any settlement.”

They added, “Should we determine that admissions or other acknowledgment of misconduct are critical, we would require such admissions or acknowledgment, or, if the defendants refuse, litigate the case.”

Ms. White said that most cases would still be settled under the prevailing “neither admit nor deny” standard, which, she said, has been effective at encouraging defendants to settle and speeding relief to victims.

The policy change follows years of criticism that the S.E.C. has been too lenient, especially with the large institutions that were at the center of the financial crisis. Bank of America, Goldman Sachs, Citigroup and JPMorgan Chase were among the defendants that settled charges related to the financial crisis while neither admitting nor denying guilt, although Goldman was required to admit that its marketing materials were incomplete.

That this approach became such a heated public issue is in large part because of the provocative efforts of Judge Jed S. Rakoff of Federal District Court, who has twice threatened to derail settlements with large financial institutions that neither admitted nor denied the government’s allegations.

In late 2011, he ruled that he couldn’t assess the fairness of the agency’s settlement with Citigroup in a complex mortgage case without knowing what, if anything, Citigroup had actually done. In his ruling, he said that settling with defendants who neither admit nor deny the allegations is a policy “hallowed by history but not by reason.”

He described the settlement, which was for $285 million, as “pocket change” for a giant bank like Citigroup. Other judges have followed Judge Rakoff’s lead, and an appeal of his Citigroup ruling is pending before the Court of Appeals for the Second Circuit.

The new policy would seem to vindicate Judge Rakoff, at least in spirit, but Ms. White said the decision was rooted in her experience as United States attorney in New York, where defendants in criminal cases are almost always required either to enter a guilty plea or go to trial.

“Judge Rakoff and other judges put this issue more in the public eye, but it wasn’t his comments that precipitated the change,” she said. “I’ve lived with this issue for a very long time, and I decided it was something that we should review, and that could strengthen the S.E.C.’s enforcement hand.” (Judge Rakoff, who is presiding over a trial in Fresno, Calif., said he couldn’t comment, citing the appeal of his Citigroup ruling.)

Those concerned that Ms. White, who before her confirmation as chairwoman of the S.E.C. was head of the litigation department at the prominent corporate law firm Debevoise Plimpton, might be too cozy with the big banks and corporations that were formerly her clients, can breathe easier. Even some of the S.E.C.’s harshest critics were at least somewhat mollified.

“It’s an important step in the right direction,” said John Coffee, a professor at Columbia Law School and a vocal critic of S.E.C. settlements he deems too lenient. “There’s clearly a public hunger for accountability. Mary Jo White has shown she sensitive to this.”

Article source: http://www.nytimes.com/2013/06/22/business/secs-new-chief-promises-tougher-line-on-cases.html?partner=rss&emc=rss

Common Sense: S.E.C. Has a Message for Firms Not Used to Admitting Guilt

In a departure from long-established practice, the recently confirmed chairwoman of the Securities and Exchange Commission, Mary Jo White, said this week that defendants would no longer be allowed to settle some cases while “neither admitting nor denying” wrongdoing.

“In the interest of public accountability, you need admissions” in some cases, Ms. White told me. “Defendants are going to have to own up to their conduct on the public record,” she said. “This will help with deterrence, and it’s a matter of strengthening our hand in terms of enforcement.”

In a memo to the S.E.C. enforcement staff announcing the new policy on Monday, the agency’s co-leaders of enforcement, Andrew Ceresney and George Canellos, said there might be cases that “justify requiring the defendant’s admission of allegations in our complaint or other acknowledgment of the alleged misconduct as part of any settlement.”

They added, “Should we determine that admissions or other acknowledgment of misconduct are critical, we would require such admissions or acknowledgment, or, if the defendants refuse, litigate the case.”

Ms. White said that most cases would still be settled under the prevailing “neither admit nor deny” standard, which, she said, has been effective at encouraging defendants to settle and speeding relief to victims.

The policy change follows years of criticism that the S.E.C. has been too lenient, especially with the large institutions that were at the center of the financial crisis. Bank of America, Goldman Sachs, Citigroup and JPMorgan Chase were among the defendants that settled charges related to the financial crisis while neither admitting nor denying guilt, although Goldman was required to admit that its marketing materials were incomplete.

That this approach became such a heated public issue is in large part because of the provocative efforts of Judge Jed S. Rakoff of Federal District Court, who has twice threatened to derail settlements with large financial institutions that neither admitted nor denied the government’s allegations.

In late 2011, he ruled that he couldn’t assess the fairness of the agency’s settlement with Citigroup in a complex mortgage case without knowing what, if anything, Citigroup had actually done. In his ruling, he said that settling with defendants who neither admit nor deny the allegations is a policy “hallowed by history but not by reason.”

He described the settlement, which was for $285 million, as “pocket change” for a giant bank like Citigroup. Other judges have followed Judge Rakoff’s lead, and an appeal of his Citigroup ruling is pending before the Court of Appeals for the Second Circuit.

The new policy would seem to vindicate Judge Rakoff, at least in spirit, but Ms. White said the decision was rooted in her experience as United States attorney in New York, where defendants in criminal cases are almost always required either to enter a guilty plea or go to trial.

“Judge Rakoff and other judges put this issue more in the public eye, but it wasn’t his comments that precipitated the change,” she said. “I’ve lived with this issue for a very long time, and I decided it was something that we should review, and that could strengthen the S.E.C.’s enforcement hand.” (Judge Rakoff, who is presiding over a trial in Fresno, Calif., said he couldn’t comment, citing the appeal of his Citigroup ruling.)

Those concerned that Ms. White, who before her confirmation as chairwoman of the S.E.C. was head of the litigation department at the prominent corporate law firm Debevoise Plimpton, might be too cozy with the big banks and corporations that were formerly her clients, can breathe easier. Even some of the S.E.C.’s harshest critics were at least somewhat mollified.

“It’s an important step in the right direction,” said John Coffee, a professor at Columbia Law School and a vocal critic of S.E.C. settlements he deems too lenient. “There’s clearly a public hunger for accountability. Mary Jo White has shown she is sensitive to this.”

Article source: http://www.nytimes.com/2013/06/22/business/secs-new-chief-promises-tougher-line-on-cases.html?partner=rss&emc=rss

Judge Rejects Much of Libor Lawsuit Against Banks

Sixteen banks had faced claims totaling billions of dollars in the case, which had been considered their biggest legal threat aside from investigations being pursued by regulators in the United States and Europe into manipulation of the London Interbank Offered Rate, known as Libor. The list of banks includes Bank of America, Citigroup, Credit Suisse, Deutsche Bank, HSBC and JPMorgan Chase.

The banks had been accused by a diverse body of plaintiffs, as varied as bondholders and the City of Baltimore, of conspiring to manipulate Libor, a benchmark at the heart of more than $550 trillion in financial products.

But in the ruling on Friday, Judge Naomi Reice Buchwald of United States District Court in Manhattan, while acknowledging that her decision “might be unexpected,” granted the banks’ motion to dismiss federal antitrust claims and partly dismissed the plaintiffs’ claims of commodities manipulation. She also dismissed racketeering and state-law claims.

Judge Buchwald allowed a portion of the lawsuit to continue: the claims that banks’ purported manipulation of Libor had harmed traders who bet on interest rates. Small shifts in rates can mean sizable gains or losses.

The decision may also make it more likely that banks will have an advantage in potential settlement talks.

Article source: http://www.nytimes.com/2013/03/30/business/global/judge-rejects-much-of-libor-lawsuit-against-banks.html?partner=rss&emc=rss

DealBook: Facing Legal Costs, Citigroup Disappoints in 4th Quarter

A 'Citi' sign near the bank's headquarters in Manhattan.Mario Tama/Getty ImagesA ‘Citi’ sign near the bank’s headquarters in Manhattan.

Citigroup, which has been working to cut costs and unload troubled assets, continues to struggle under the weight of its mortgage woes.

The bank reported fourth-quarter profit of $1.2 billion, or 38 cents a share, significantly below analysts’ estimates. Excluding one-time items, earnings amounted to 69 cents a share.

Ahead of the bank’s quarterly earnings, analysts estimated earnings at 96 cents a share, according to a survey by Thomson Reuters. In the period a year earlier, the bank posted profit of $956 million, or 31 cents a share.

Related Links



The disappointing quarter relates to continuing legal problems, as the bank works to clean up the mortgage mess stemming from the financial crisis. In the fourth quarter, Citigroup had $1.3 billion of legal costs and related expenses.

Citigroup has also faced increasing pressure from shareholders to buoy its returns. As part of that effort, the bank has been working through a glut of soured loans and unloading less-profitable business lines while systematically reducing costs. In December, the bank announced that it would eliminate 11,000 jobs worldwide, part of a much larger contraction.

“Our bottom line earnings reflect an environment that remains challenging,” Michael L. Corbat, the bank’s chief executive, said in a statement. “It will take some time to work through the challenges of the current environment but realizing our core earnings potential, as well as improving our returns on assets and tangible equity, are critical goals going forward.”

Beneath the headline numbers, Citigroup did experience gains in some of its businesses.

The bank has been focusing on developing countries, where there are comparatively more growth opportunities than in the United States. Within the global consumer banking group, revenue increased 4 percent, to $4.9 billion, in the fourth quarter. Revenue in North America rose 3 percent, to $5.3 billion.

Citigroup’s securities and banking group also improved, on the strength of investment banking, equities and fixed income. The unit reported net income of $629 million for the quarter, compared with a $158 million loss in the period a year earlier.

Emphasizing improvements in the bank, John C. Gerspach, the bank’s chief financial officer, said on a conference call on Thursday that the bank had gained “client wallet share” in its investment banking business.

The fourth-quarter earnings are the first under Mr. Corbat’s leadership.

In October, the bank’s powerful chairman, Michael E. O’Neill, abruptly ousted Vikram S. Pandit as chief executive. Since taking the reins of the bank, Mr. Corbat has vowed to continue to revamp the bank, focusing on its core businesses and exiting less profitable areas.

Such efforts have weighed on the bank’s bottom line in the short term. In the fourth quarter, Citigroup’s operating expenses rose 5 percent, to $13.8 billion.

Along with its strategic moves, Citigroup also paid for its legal problems. Like rivals, the bank faces claims that it used shoddy documents in foreclosure proceedings that might have led to wrongful evictions.

Citigroup, along with nine other banks, agreed this month to sign on to an $8.5 billion settlement with the Federal Reserve and the Office of the Comptroller of the Currency. The settlement will allow Citigroup to move beyond an expensive review of loans mandated by regulators in 2011.

On the earnings call, Mr. Gerspach hinted that the banking industry’s legal woes were not over. “I think that the entire industry is still looking at some additional settlements that are still yet to appear,” he said.

Article source: http://dealbook.nytimes.com/2013/01/17/facing-legal-costs-citigroup-disappoints-in-4th-quarter/?partner=rss&emc=rss

Slim Gains in Markets Ahead of Earnings Reports

Stocks gained for a second straight week as companies began releasing earnings reports, keeping the Standard Poor’s 500-stock index within a fraction of its highest level in five years.

The S. P. 500 was little changed Friday, gaining 5 points during the week to close at 1,472.05. On Thursday, the index was at 1,472.12, its highest level since December 2007.

The Dow Jones industrial average rose 17.21 points, to 13,488.43. The Nasdaq composite index rose 3.87 to 3,125.63. For the week, the Dow rose 53 points and the Nasdaq rose 24 points.

Companies have started to report earnings for the fourth quarter of 2012, but no clear pattern has emerged as yet. The aluminum company Alcoa gave stocks a lift after it reported earnings late Tuesday that matched analysts’ expectations and said that demand was increasing. Investors were unimpressed by Wells Fargo’s record profits Friday, choosing instead to focus on the sustainability of those earnings.

“You’ve been hearing comments that earnings season is going to show a continued contraction in the rate of growth,” said Robert Pavlik of Banyan Partners. “People are conflicted, they are worried, but at the same time they don’t want to be missing out on the action” in the market.

Analysts expected fourth-quarter earnings for S. P. 500 companies to grow by 3.3 percent, according to the latest data from SP Capital IQ. That was a better growth rate than the previous quarter, but it was considerably weaker than the 8.4 percent rate in the same period last year.

Stock in Wells Fargo, the first major bank to report earnings, dropped after it reported a 25 percent increase in fourth-quarter earnings. Its shares fell 30 cents, or 0.9 percent, to $35.10. JPMorgan Chase, Goldman Sachs, U.S. Bancorp, Citigroup and Bank of America were among the financial companies set to report earnings next week.

Financial stocks were the best-performing group in the S. P. 500 last year, gaining 26 percent. Other companies reporting next week include eBay and Intel.

The Treasury’s benchmark 10-year note rose 9/32, to 97 27/32, and the yield fell to 1.87 percent from 1.90 percent late Thursday.

Article source: http://www.nytimes.com/2013/01/12/business/stocks-slip-after-5-year-high.html?partner=rss&emc=rss

DealBook: Three Arrested in Libor Investigation

9 p.m. | Updated

David Meister of the Commodity Futures Trading Commission.Dave Cross PhotographyDavid Meister of the Commodity Futures Trading Commission.

American and British authorities are shifting to an aggressive new phase in their broad investigation of interest-rate manipulation as they identify potential criminal targets and complete settlements with some of the world’s biggest banks.

In a sign of the escalation, Britain’s Serious Fraud Office made the first arrests in connection with the rate-rigging inquiry on Tuesday.

In a predawn raid, police took three men into custody at their homes on the outskirts of London. One of the men is Thomas Hayes, 33, a former trader at UBS and Citigroup, according to people briefed on the matter who spoke on condition of anonymity. The other two men arrested worked for the British brokerage firm R P Martin, said another person briefed on the matter.

Related Links

British authorities typically make arrests in the early stages of an inquiry, and the actions on Tuesday do not necessarily signal that the individuals will be charged with wrongdoing.

UBS, Citigroup and R P Martin declined to comment. A lawyer for Mr. Hayes, who has not been accused of any wrongdoing, could not be reached for comment.

Mr. Hayes also faces scrutiny from American authorities. The Justice Department could file criminal charges against him in the coming weeks, according to people briefed on the matter who spoke on the condition of anonymity because the investigation is continuing. The people cautioned that American authorities had not made a decision about charging Mr. Hayes and might have difficulty extraditing him to the United States.

Lanny A. Breuer, the head of the Justice Department's criminal division.Joshua Lott/ReutersLanny A. Breuer, the head of the Justice Department’s criminal division.

The evidence against Mr. Hayes is considered a linchpin in a broader case involving UBS, the Swiss banking giant. UBS is expected to settle accusations that Mr. Hayes and other employees carried out a scheme to push interest rates up and down to bolster trading profits, according to the people briefed on the matter. The people said the expected settlement, which could come as early as Friday, would include more than $450 million in fines and wider sanctions, the largest penalties to date related to the rate-rigging inquiry.

Building on the momentum in the UBS inquiry, authorities are preparing a spate of civil and criminal actions. After gathering thousands of internal bank e-mails and interviewing dozens of employees over the last four years, regulators and prosecutors are using the evidence to negotiate settlements with banks and draw up arrest orders for individuals.

Libor Explained

Offices of the Swiss bank UBS in London.Carl Court/Agence France-Presse — Getty ImagesOffices of the Swiss bank UBS in London.

The cases have deep roots. Regulators around the world have been investigating more than a dozen big banks that help set benchmarks like the London interbank offered rate, or Libor. Such benchmark rates are used to determine the borrowing costs for trillions of dollars in financial products, including credit cards, student loans and mortgages.

In June, authorities scored their first major victory, extracting a $450 million settlement with Barclays, the big British bank. The Commodity Futures Trading Commission, the Justice Department and the Financial Services Authority of Britain claimed that Barclays traders tried to manipulate Libor to bolster profits. They also claimed that Barclays had submitted low rates to deflect concerns about its health during the financial crisis.

Other banks are bracing for the potential fallout, including major fines and regulatory sanctions. The Royal Bank of Scotland, which is in settlement talks with regulators, said it would probably disclose fines before its next earnings report, in February. Deutsche Bank, Germany’s largest bank, said in November that it had put aside money for potential penalties related to the Libor case.

Even as authorities prepare a new wave of actions, they have not always coordinated with each other. Some American authorities were caught off guard when the Serious Fraud Office announced the arrests on Tuesday. And the various regulators are still not certain if they will jointly announce the UBS settlement this month, according to the people briefed on the matter.

The Justice Department’s criminal division and the Commodity Futures Trading Commission’s enforcement unit, in contrast, have kept close ties. Lanny A. Breuer, head of the Justice Department’s criminal division, and David Meister, who runs the commission’s enforcement team, are said to be friends. As they built Libor cases over the last two years, the units have shared evidence that they say points to a systemic problem with the rate-setting processes.

The Serious Fraud Office is a relative newcomer to the Libor case. After hesitating to enter the investigation, the agency opened a criminal inquiry into Libor manipulation in July, in response to the furor over the rate-rigging scandal at Barclays.

“The S.F.O. works incredibly slowly,” said a defense lawyer representing other individuals implicated in the Libor inquiry, who spoke on the condition of anonymity. “It’s not surprising that people have been arrested. But how long it will take to lead to criminal charges is another matter.”

Under British law, London police can hold the three men arrested on Tuesday for 24 hours. Authorities can apply for an extension if they need more time for questioning the men.

Mr. Hayes, who got his start at the Royal Bank of Canada, built his reputation as an interest rates trader at UBS, a person briefed on the matter said. He worked at UBS’s Tokyo office from about 2006 to 2009 before departing for Citigroup. At the American bank, he received a promotion, earning a director title.

Mr. Hayes spent less than six months trading at Citigroup. The bank suspended him in 2010 after he approached a London trading desk about improperly influencing the yen-denominated Libor rates, a person briefed on the matter said. He was fired in September 2010, and the bank reported his suspected actions to authorities.

UBS also raised concerns about Mr. Hayes to the Commodity Futures Trading Commission, according to another person briefed on the matter. In the course of an internal investigation, the Swiss bank concluded that Mr. Hayes had worked with traders at other banks to influence rates, according to officials and court documents.

At the time, the trading commission ordered other institutions that helped set Libor rates to conduct similar inquiries. Those investigations have formed the basis of the agency’s cases.

Mr. Hayes also emerged in court documents filed this year by Canadian authorities. The documents — collected by Canada’s Competition Bureau, the country’s antitrust authority — highlight an alleged scheme in which Mr. Hayes and other traders may have colluded to influence yen Libor rates. The Canadian investigation, which covers conduct from 2007 to 2010, also referred to traders at JPMorgan Chase, HSBC, Deutsche Bank and the Royal Bank of Scotland.

The traders, the documents said, at times corresponded using instant messages on Bloomberg machines. While the activity took place outside Canada, the trading affected financial contracts in the country that were pegged to yen Libor.

The traders further asked middlemen at brokerage firms “to use their influence” on other banks that set Libor, according to the documents. The brokers included employees at R P Martin, a person briefed on the matter said.

“Traders at participants’ banks communicated with each other their desire to see a higher or lower yen Libor to aid their trading positions,” the Canadian documents said.

Azam Ahmed and Ian Austen contributed reporting.

Article source: http://dealbook.nytimes.com/2012/12/11/three-arrested-in-connection-to-rate-rigging-scandal/?partner=rss&emc=rss

DealBook: Citigroup to Cut 11,000 Jobs and Take $1 Billion Charge

A Citibank branch in Manhattan. The bank has been sharply reducing its expenses.Andrew Gombert/European Pressphoto AgencyA Citibank branch in Manhattan. The bank has been sharply reducing its expenses.

1:22 p.m. | Updated

Citigroup announced on Wednesday that it would cut 11,000 jobs, reducing its work force by roughly 4 percent in an effort to cut costs.

Under the reduction, 1,900 jobs will be eliminated in the institutional clients division. Another 6,200 positions will be removed from the bank’s consumer banking business, along with 2,600 jobs in the operations and technology group.

Since 2007, the bank has slashed its workforce by 33 percent, leaving it with about 250,000 employees today.

Related Links

The reductions at Citigroup come after the bank’s powerful chairman, Michael E. O’Neill, engineered the ouster of its former chief executive, Vikram S. Pandit, and named a handpicked successor, Michael L. Corbat, according to several people close to the bank.

Since the power change in October, which stunned Wall Street, there has been unease throughout the upper ranks of Citigroup, according to the people. Some within the executive ranks have been worried that Mr. O’Neill, acting through Mr. Corbat, would quickly pare down the bank.

Citigroup Michael Corbat, 52, the new chief executive of Citigroup, led Citigroup's bad bank, which sold off troubled assets.Jason Kempin/Getty ImagesMichael Corbat, 52, the new chief executive, led Citigroup’s “bad bank,” which sold off troubled assets.

“These actions are logical next steps in Citi’s transformation,” Mr. Corbat said in a statement. “While we are committed to – and our strategy continues to leverage – our unparalleled global network and footprint, we have identified areas and products where our scale does not provide for meaningful returns.”

The bank said it would take a pretax charge of roughly $1 billion in the fourth quarter and $100 million of related charges in the first half of 2013. In the third quarter, Citigroup reported a profit of $468 million, or 15 cents a share.

When Mr. Corbat took on the role of chief executive in October, he told analysts he intended to continue a strategy at Citigroup of focusing on the bank’s core businesses.

The cuts were made after exhaustive meetings in November involving virtually every head of the bank’s businesses at Citigroup’s headquarters in New York, according to several senior executives at the bank. The mandate was to find ways to reduce costs.

Earlier this week, Mr. Corbat briefed the board about the job cuts.

Citigroup has had a turbulent recent history, after teetering on the brink of collapse during the financial crisis and receiving a $45 billion lifeline from the federal government. After emerging from the financial crisis, it has been sharply reducing its expenses and trying to shed even more troubled assets in an effort to restore the bank to its past profitability.

But those efforts have been dogged by missteps and turmoil. In March, for example, the Federal Reserve dealt a stunning blow to Citigroup when it scuttled the bank’s plans to raise its dividend or increase share buybacks. Shortly afterward in April, the bank’s shareholders, in a rare move, voted against a $15 million pay package for Mr. Pandit.

Executives at Citigroup are still struggling to rein in the bank’s business and work through a mass of bad assets in its Citi Holdings unit.

When Mr. O’Neill joined the board in 2009, he was intent on reducing costs in the bank’s vast operations. Mr. O’Neill has had practice turning around an underperforming bank, having steered Bank of Hawaii to profitability earlier in his career.

His plans, according to several former colleagues, typically involve ruthless cost-cutting, often resulting in bank branches being closed. In its announcement on Wednesday, the bank said 84 branches worldwide would be closed.

The bank’s shares rose about 6 percent by afternoon.

Article source: http://dealbook.nytimes.com/2012/12/05/citi-to-cut-11000-jobs-and-take-1-billion-charge/?partner=rss&emc=rss

Bucks: Citi Offers Price Protection Service

Citigroup has begun offering a price protection service that promises to help save its customers money, if an item bought with a Citi credit card drops in price after a purchase.

Called Price Rewind, the free feature works for many purchases made with a Citi credit card (the card must be a Citi-branded consumer credit card; business cards don’t qualify). The idea is appealing, although there is some fine print on the program’s Web site that you’ll need to pay attention to.

Here’s the gist: You buy something in a store or online — say, a television. You then register the item by finding it online on the Price Rewind Web site, and entering details like when and where you bought it and the price you paid. You must save your receipt.

For the next 30 days, Citi’s system electronically monitors online prices for the same item. If it finds a price that falls $25 or more from your purchase price, the system alerts you by e-mail that you may qualify for a refund.

You then file a claim with Citi, along with a receipt. You can file the receipt electronically, by uploading a photo of it, or you may fax or mail it. (A Citi spokeswoman, Emily Collins, says the receipt is needed because purchase details aren’t necessarily itemized on credit card statements if you buy multiple items.) You can also file a claim by contacting Citicorp Insurance Services at 866-934-1140.

If the purchase qualifies, you’ll get a check for the difference in price in about 10 to 14 days after approval. You must file the claim within 90 days of the purchase.

While the refund isn’t automatic, the service does eliminate the need to keep checking yourself for possible price discounts after you buy something. And you don’t have to bring your item or receipt back to the store to collect the refund.

The program was originally tested in 2010 and is being expanded to all Citi cardholders. Citi says it has found lower prices for about a fourth of registered purchases over $100, and the average refund is $80.

There are limits and caveats, of course. You can get a maximum of $250 back per item and a total of $1,000 per year.

Purchases of most new items like electronics, clothing and toys are covered, but there are exclusions. Jewelry and airfares aren’t covered, for instance, and neither are live animals or “stuffed or mounted animals, animal or fish trophies,” according to Citi’s Web site.

If you’ve used the program, let us know about your experience.

Article source: http://bucks.blogs.nytimes.com/2012/11/19/citi-offers-price-protection-service/?partner=rss&emc=rss

DealBook: Jury Found Brian Stoker Not Guilty, but Not Necessarily Citigroup

Beau Brendler served as foreman of a federal jury that cleared a former Citigroup manager in a mortgage securities case.Susan Stava for The New York TimesBeau Brendler served as foreman of a federal jury that cleared a former Citigroup manager in a mortgage securities case.

As Beau Brendler sat in the jury box listening to the government’s case against a former Citigroup midlevel executive, the same question kept entering his mind.

“I wanted to know why the bank’s C.E.O. wasn’t on trial,” said Mr. Brendler, who served as the jury’s foreman. “Citigroup’s behavior was appalling.”

Despite that sentiment, Mr. Brendler and his fellow jurors — a group that included a security guard, a lab technician and a full-time musician in a rock ’n’ roll band — cleared the former Citigroup executive, Brian Stoker, of wrongdoing over his role in selling a complex $1 billion mortgage bond deal during the waning days of the housing boom.

But even as the jury reached a consensus that the Securities and Exchange Commission failed to prove its case, it was left with an uneasy feeling that the verdict inadequately described its feelings about Citigroup’s conduct.

“We were afraid that we would send a message to Wall Street that a jury made up of regular American folks could not understand their complicated transactions and so they could get away with their outrageous conduct,” Mr. Brendler said. “We also did not want to discourage the government from investigating and prosecuting financial crimes.”

So the jurors did something extremely rare: They issued a statement alongside their verdict.

“This verdict should not deter the S.E.C. from continuing to investigate the financial industry, review current regulations and modify existing regulations as necessary,” said the statement, which was read aloud by Judge Jed S. Rakoff in Federal District Court in Manhattan on Tuesday.

Mr. Brendler, a 48-year-old freelance writer, wrote the sentence after soliciting input from the seven other jurors. He scratched it out on a yellow sheet ripped from a legal pad, wrapped it around the verdict form and put both in a sealed envelope that was delivered to the judge.

“It wasn’t a particularly eloquent statement, but we hoped it would get a point across,” Mr. Brendler said.

In an informal survey of 11 defense lawyers and prosecutors, not one could recall a case when a jury had issued a statement like the one that the Stoker jury did. Dennis M. Kelleher, a former litigator at Skadden, Arps, Slate, Meagher Flom, said that the jury’s admonition underscored the nation’s prevailing sentiment about the financial services industry.

“These eight ordinary citizens believed what the polls tell us most Americans believe,” said Mr. Kelleher, who now serves as president of Better Markets, a lobbying organization pressing for regulatory reform. “They still would be delighted to see the government hold these banks and some of their executives accountable for misconduct during the financial crisis.”

Mr. Stoker’s trial was one of the few cases related to the financial crisis that has gone to a jury. The case was brought alongside a civil fraud lawsuit accusing Citigroup of misleading clients about a 2007 investment in a collateralized debt obligation, or C.D.O. Citigroup was among the leaders in structuring these complex securities, which were pools of mortgages sliced up into pieces and sold off to investors. The bank marketed more than $20 billion worth of C.D.O.’s, earning enormous fees.

It is widely acknowledged that C.D.O.’s were a root cause of the financial crisis, stoking the demand for subprime mortgages and inflating the housing bubble. The securities also ended up on balance sheets of the large banks, saddling them with crippling losses when the housing market collapsed.

A questionable tactic used by Citigroup and several other banks was at the heart of the Stoker case. Some banks stuffed C.D.O.’s with risky mortgage securities, sold them to unsuspecting customers and then bet against them.

Regulators said that Mr. Stoker, who prepared marketing materials for the deal, knew or should have known that he was deceiving investors by not disclosing that Citigroup helped pick the underlying mortgage bonds in the C.D.O. and then bet that its value would decline. When the housing market collapsed, Citigroup’s clients lost money while the bank made a bundle.

“Citi is a fundamentally different company today than it was before the crisis,” said Danielle Romero-Apsilos, a spokeswoman for the bank. “We continue to work hard to instill a culture of responsible finance.”

Now under new management, Citigroup agreed to pay the government $285 million to resolve its role in the case, but the settlement has yet to receive court approval. Mr. Stoker, however, took his case to trial.

Travis Dawson, 23, a student at Baruch College, also served on the Stoker jury. Before the trial, Mr. Dawson, a lifelong Bronx resident, had been largely uninformed about the ways of Wall Street.

“Where I’m from, you hear Wall Street is an evil place but you really have nothing to base that on,” Mr. Dawson said. “But after sitting on the jury I thought, ‘Wow, greedy, reckless behavior really does happen there.’ ”

In explaining the verdict, both Mr. Dawson and Mr. Brendler said that they believed that Mr. Stoker was made a scapegoat for the industry’s sins. In his closing statement, Mr. Stoker’s lawyer, John W. Keker, hammered away at that point, arguing that his client “shouldn’t be blamed for the faults of banking any more than a person who works in a lawful casino should be blamed for the faults of gambling.”

Mr. Keker underscored this point by showing the jury an illustration from “Where’s Waldo?,” the children’s book in which readers are challenged to find the hidden title character. He likened his client to Waldo, suggesting that Mr. Stoker, 41, was merely a blip in Citigroup’s vast C.D.O. universe.

“Most of this trial had nothing to do with Brian Stoker,” Mr. Keker said.

Mr. Dawson said that the “Where’s Waldo?” allusion resonated.

“I’m not saying that Stoker was 100 percent innocent, but given the crazy environment back then it was hard to pin the blame on one person,” Mr. Dawson said. “Stoker structured a deal that his bosses told him to structure, so why didn’t they go after the higher-ups rather than a fall guy?”

With the trial now finished, the foreman, Mr. Brendler, who lives in Patterson, N.Y., in northeast Putnam County, is back looking for full-time work. He hasn’t held a steady job since 2009, when Consumer Reports laid him off.

He was heartened to see that the S.E.C.’s director of enforcement issued a statement after the verdict that it respected the jury’s decision and would continue to pursue misconduct arising out of the financial crisis. And on Thursday, the S.E.C. lawyers who tried the case called him to ask how they could be more effective.

“I’m glad they’re taking this seriously because the industry seemed completely out of control with no oversight,” Mr. Brendler said. “Wall Street’s actions hurt all of us and we badly need a watchdog who will rein them in.”

Article source: http://dealbook.nytimes.com/2012/08/03/s-e-c-gets-encouragement-from-jury-that-ruled-against-it/?partner=rss&emc=rss