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From the article Plastic linked below

These reports come as a shock, since Corbat was being lauded just the other day for his progressive vision in maneuvering Fraser into position to be his replacement. It's certainly a blemish that Corbat, who has served as CEO since 2012, will see tarnish his legacy on his way out, while also making Citi vulnerable to political backlash during an election year.

 

A stunning example of the lax regulatory bodies when its more likely that poilitical backlash is a greater punishment than what the regulatory bodies themselves have done.

Wall street on parade

 

outlines the enormously unethical immoral, and probably downright illegal of Citibank.

The business media was abuzz yesterday with reports that two of Citigroup’s federal regulators – the Office of the Comptroller of the Currency and the Federal Reserve – are considering reprimanding the bank for failure to improve its risk management systems. Trust us: there is a lot more to this story than you’re reading about in the main stream press. Citigroup doesn’t do anything small. When it does something bad, it goes all in – sometimes even assigning a code name.

 

Let’s start with the “Dr. Evil†trade. That was actually the code name that Citigroup traders assigned to an attempt to exploit a weakness in a European bond trading system. Citigroup was fined $26 million in 2005 by Europe’s Financial Services Authority for the trades.

 

Citigroup employees gave another code name, “Buca Nero†– Italian for “Black Hole†– to an accounting maneuver that made debt appear to be an investment at the debt-strapped Italian dairy company, Parmalat. The company collapsed in 2003 in what became Europe’s largest ever bankruptcy.

 

In 2005 Citigroup settled with the Securities and Exchange Commission for $101 million for helping the notorious Enron inflate its cash flows and under report its debts. The same year, Citigroup settled with private litigants for $2 billion over its role in the bankruptcy of Enron.

 

Then there were those infamous SIV liquidity puts. In the leadup to Wall Street’s financial collapse in 2008, Citigroup had been creating Structured Investment Vehicles (SIVs) and using them to place toxic subprime debt off its balance sheet. The problem was that those SIVs promised to provide liquidity to buyers of its commercial paper if the market bulked and wouldn’t roll over the commercial paper. That meant that Citigroup, in providing those liquidity puts, had to put this toxic debt back on its own balance sheet and take massive losses. Citigroup’s stock went to 99 cents in 2009 as it was receiving the largest taxpayer bailout in U.S. history.

 

While all of the above had been going on, Sandy Weill, the Chairman and CEO of Citigroup, had amassed a fortune from the bank through a technique that compensation expert Graef “Bud†Crystal called the Count Dracula stock option plan. You couldn’t kill it; not even with a silver bullet. Nor could you prosecute it, because Citi’s Board of Directors had signed off on it.

 

The plan worked as follows: every time Weill exercised one set of stock options, he got a reload of approximately the same amount of options, regardless of how many frauds the bank had been charged with during that year.

 

Crystal explained in an article for Bloomberg News that between 1988 and 2002, Weill “received 96 different option grants†on an aggregate of $3 billion of stock. Crystal says “It’s a wonder that Weill had time to run the business, what with all his option grants and exercises. In the years 1996, 1997, 1998 and 2000, Weill exercised, and then received new option grants, a total of, respectively, 14, 20, 13 and 19 times.â€

 

By the time Weill stepped down as CEO in 2003, he had received over $1 billion in compensation, the majority of it coming from his reloading stock options. (Weill remained as Chairman of Citigroup until 2006.) One day after stepping down as CEO, Citigroup’s Board of Directors allowed Weill to sell back to the corporation 5.6 million shares of his stock for $264 million. This eliminated Weill’s risk that his big share sale would drive down his own share prices as he was selling. The Board negotiated the price at $47.14 for all of Weill’s shares.

There have been some other strange things going on at Citigroup during this recent financial crisis. In July we reported that Citibank, the commercial bank owned by Citigroup, had received more than $3 billion in reimbursements from the Federal Reserve for loans that Citi had made under the Paycheck Protection Program. Those loans are guaranteed by the Small Business Administration so why would Citigroup need to be reimbursed for guaranteed loans? None of Citigroup’s peer banks – like Wells Fargo, Bank of America, JPMorgan Chase, Goldman Sachs or Morgan Stanley – took money from the Fed under this program. Just Citibank.

 

There are also numerous complaints online from Citibank customers that the bank is, without warning, cutting their credit limit on their credit cards. That doesn’t seem to square with the repeated representations from Federal Reserve Chairman Jay Powell that the big Wall Street banks are a “source of strength†during this economic crisis – the second one the U.S. is facing in a period of just 12 years.

Makes our banks look like angels.

Mick

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Need to study up on the Japanese banking crisis post the eighties bubble economy. Now that was a housing boom bubble.

 

There will be a time when bank bonds look like the worst thing you could ever buy because of the risk of default. That will be the time to move. Just pick wisely because there may be a default. Gotta know the terms of the deed and the bank needs to have good governance. Anyone who relies on the took big to fail mantra will get desecrated.

 

It will be great though having the bank in hock to you for a change.

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