COMPANIES The size of Citigroup's controversial eurozone government bond trades was unintentional, the bank said on Wednesday as it apologised for the "inappropriate, unrealistic and . . . juvenile" behaviour of some of the traders involved.
The bank sold approximately €12bn ($15.6bn) of the paper in August in a series of rapid trades, only to buy back about €4bn at lower prices soon after for an estimated €17m profit.
In its most comprehensive statement on the case so far Citigroup said its traders had underestimated the depth of the market and "had not intended to sell more than the cash position of approximately €8bn that they held".
People familiar with the trades had said Citigroup bombarded the MTS electronic market with selling orders amounting to tens of billions of euros, and these overwhelmed the bids on the system.
The transactions disrupted trading on the MTS platform, causing rival banks temporarily to pull their price quotes from the system. Consequently, Citigroup's trades created initial uncertainty about prices, angering eurozone governments. Yesterday the bank reiterated that it "regretted having executed the trade, because we failed to consider its potential impact on our clients and other stakeholders, including European regulators and treasuries, and because it did not meet our standards".
However, the bank said that, based on reports it had received on the trades, and its internal investigations, it continued to believe that the trades "did not violate any applicable rules or regulations".
Read the Citigroup memo in full
’Kill off some of the smaller dealers’
Citigroup declined to say who authorised the trades, or whether it had taken any action against the traders involved. Wednesday's statement was issued by Tom Maheras, chief executive officer of its global capital markets business, and William Mills, its chief executive for Europe, the Middle East and Africa.
The statement follows the disclosure by the Financial Times on Tuesday of a Citigroup memorandum, in which Citigroup traders outline an aggressive strategy to shake up the eurozone government bond market and to "kill off" some smaller rivals in the process.
The bank said they had made "inappropriate, unrealistic, and in certain instances juvenile remarks about the trading strategy before it was executed".
Citigroup's trades are being investigated by several European market regulators, including BaFin of Germany and the UK's Financial Services Authority. On Wednesday the bank said it was "fully co-operating" with the regulatory inquiries. Frankfurt prosecutors are expected to conclude preliminary investigations by the end of this month.
Citigroup has been eager to draw a line under its regulatory troubles in Europe and Asia.
On Wednesday it said it had launched an internal review and hired a UK law firm to do an independent investigation into the eurozone bond trades.
