Now raising intellectual capital

Citi’s other prop desk

Now that Citi is unloading it’s much-hyped Phibro energy trading group maybe the media can start focusing on the part government-owned bank’s other proprietary trading desk–its Principal Strategies Group.

While everyone has been obessing over Phibro and the excessive $100 million payday for top trader Andrew Hall, Citi continues to quietly add prop traders to this little-known group that uses bank capital to trade stocks and bonds.

Back in the summer, I wrote about how Citi was committing up to $1 billion in new capital to this group of three dozen traders and analysts–even though Citi CEO Vikram Pandit said earlier this year the bank was moving out of prop trading. But the rest of the media remained focused on Phibro, in part because it’s far easier to write stories about Wall Street salaries and big bonuses.

So with much of the financial press blinded by Hall’s outsized compensation package, Pandit’s strategy of reconstituting a prop trading desk that lost a bundle last year continues to get little attention. In fact, The Wall Street Journal, seemingly oblivous to the Principal Strategies Group, didn’t bother to challenge Citi’s contention that its decision to sell Phibro “is consistent with its efforts to slim down and focus more on serving clients, instead of placing financial bets with the company’s own money.”

Churning is out at Citi

Citi is kicking the commission habit for its remaining brokerage customers.

The big bank says it is shifting away from charging commissions on customer trades and going towards a more customer friendly, fee-only business model. The change applies to investment advisors working out of Citibank branches.

Earlier this year, Citi entered into a joint venture with Morgan Stanley, which took over the day-to-day operation of its once mighty Smith Barney wealth management business. That venture largely already operates on a fee-only business.

Sheila Bair and the black marker

The other day I wrote a column about a series of meetings FDIC Chairwoman Sheila Bair had this summer with Citi Chairman Dick Parsons. The column was based on entries in Bair’s datebook, a copy of which the FDIC turned over to me in response to a FOIA request.

But here’s the thing, the FDIC actually tried to keep some of those meetings between Bair and Parsons secret–along with a number of other meetings the FDIC chairwoman had this summer. The FDIC said it needed to redact some of the entries to protect the agency’s work with the banks it regulates. The agency did this by using a simple black marker to cover over the names of some people.

Citi back for more, but sans FDIC help

It looks like Citi is on a mission to prove it doesn’t need any stinking help from the federal government. Earlier this week it tapped the bond market for $5 billion, but the notes carried the FDIC guarantee. As the FT noted in its piece yesterday, the move seemed at odds with the bank’s supposed attempts to get out from under the government’s thumb.

So today, the bank is back with five-year note offering that comes without the FDIC backstop. But it’s going to have pay for that. IFR price guidance puts the risk premium at 3.25 percentage points over Treasurys. Just for a little perspective, JP Morgan has bond maturing January 2015 trading at 1.38 percentage point over Treasurys, according to MarketAxess.

A death panel for Citi


It’s way too soon for the federal government to contemplate reducing its considerable equity stake in Citigroup.

If anything, now’s the time for the feds to finally get tough with the troubled giant and establish a firm deadline for forcing Citi to shrink itself.

Morgan Stanley keeps Goldman from top M&A slot


USBROKERS/RESEARCH-CITIGROUPDespite top billing for M&A involving European companies as well as Asia-Pacific and Japanese corporates, Goldman is not top of the league tables for global M&A for the year to date.

Instead it is long-time rival Morgan Stanley leading the pack, capitalising on a sizeable advantage in deals involving U.S. companies. Goldman is in second place in the worldwide ranking and JP Morgan third.