XLF, Banking and Financial Sector Stocks: Fed Bars Citigroup From New Acquisitions

» SteveT - Fed Bars Citigroup From New Acquisitions

Associated Press
Fed Bars Citigroup From New Acquisitions
Friday March 18, 3:29 pm ET
Federal Reserve Bars Citigroup From New Acquisitions Until Problems Corrected

WASHINGTON (AP) -- The Federal Reserve has barred Citigroup Inc., the largest U.S. financial institution, from making major new acquisitions until it corrects regulatory problems that have gotten it into trouble with authorities in several countries.

The unusual move by the central bank came less than a month after Citigroup, stung by a series of scandals in the United States and abroad, put into effect a new ethics policy and a drive to strengthen internal controls and expand training throughout the globe-spanning company.

The directive issued by the Fed's board of governors Wednesday was tucked into an order approving Citigroup's acquisition of First American Bank of Bryan, Texas, so that it initially escaped public notice. First American has assets of $3.5 billion and more than 100 branches. Terms of that deal have not been disclosed.

Referring to Citigroup's plan to bolster ethics and internal controls, the Fed said in the order it "expects that management at all levels will devote the necessary attention to implementing its plan fully and effectively and won't undertake significant expansion during the implementation period."

The Fed governors believe it is important "that management's attention not be diverted from these efforts by the demand that mergers and acquisitions place on management resources," it said.

Shannon Bell, a Citigroup spokeswoman, said in a statement that implementing the plan "is our top priority and it is the right way for Citigroup to engage in sustained long-term growth."

New York-based Citigroup was forced to close its private banking operation in Japan last year for ethical lapses. In Europe, the company is under investigation for bond trading that roiled European markets.

Before that, Citigroup became caught up in a number of domestic scandals. In April 2003, it was part of a $1.4 billion industrywide settlement with federal and state regulators over analysts issuing biased ratings on stocks to lure investment-banking business. Last year, Citigroup paid $2.58 billion to settle a class-action lawsuit brought by investors who bought WorldCom Inc. securities before the telecom titan's 2002 collapse. Citigroup also has been named in cases stemming from the Enron Corp. bankruptcy.

Citigroup also has been sued for its role in financing Parmalat Finanziaria SpA of Italy, which collapsed last year under $18 billion debt. Citigroup has denied any wrongdoing and has filed a countersuit, claiming the bank lost $670 million.

-- posted by SteveT