Citigroup Working On Secret Deal With U.S. Bank Regulator

Huffington Post, Financial Times----


Citigroup is close to a secret agreement with one of its main regulators that will increase scrutiny of the US bank and force it to fix financial, managerial and governance issues.

People close to the situation said that the deal had been discussed in recent weeks amid increased pressure on Citi from the Federal Deposit Insurance Corporation, the regulator, and could be finalised soon.

The proposed agreement requires, among other things, that Citi strengthens its board and governance, improves asset quality, better manages expenses and provides more information to regulators on its capital and liquidity, these people added.
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The regulator’s action highlights concern over Citi’s financial health, governance and the strength of its management team, led by Vikram Pandit, chief executive. The FDIC is known to be frustrated with the slow pace of Citi’s “toxic” assets sales, its losses and the lack of commercial banking experience at the top.

An agreement would strengthen the FDIC’s position in its dealings with Citi and its demands for detailed financial information as it deliberates over whether to include it on its list of “problem banks”.

Citi, which is about to cede a 34 per cent stake to the US government as part of its latest rescue, struck a similar agreement with another regulator late last year, industry executives say.

The bank and its main regulators – the Office of the Comptroller of the Currency, the Federal Reserve and the FDIC – declined to comment.

Agreements between regulators and a bank’s management and board – known as “informal actions” – are not made public to avoid stoking investors’ fears. They can be in a “memorandum of understanding” or a “commitment letter” from the bank to the authorities and are fairly unusual and less serious than formal enforcement actions.

Some MOUs and commitment letters can restrict the company’s ability to operate in certain markets or products but it is unclear whether Citi’s latest agreement contains such provisions.

Citi, which is expected to report a second-quarter loss on Friday, is already addressing some of the regulators’ concerns. It has hired five new directors and is looking for three more, bolstered its balance sheet and recruited executives with commercial banking expertise. It has also pledged to sell billions of dollars in non-core businesses and assets.

The proposed agreement with the FDIC focuses on Citi’s business and governance rather than its executives and was not a direct cause for last week’s switch of its finance chief Ned Kelly to another role, said people close to the situation.

Sources: Huffington Post, Financial Times