COMPANIES Fischer says European governments may cut business if regulators find against bank over last year's controversial bond trade By David Wighton in New York and Pa ivi Munter in London Citigroup's business with European governments is likely to be hit if regulators find against the bank over last August's controversial bond trade, according to Stanley Fischer, head of the bank's sovereign clients group. Mr Fischer, who is former deputy managing director at the International Monetary Fund, said that European governments were awaiting the outcome of regulatory inquiries. Some governments are waiting on the report of the Financial Services Authority (the UK regulator) or their own country to see how they ought to react, Mr Fischer said in an interview with the Financial Times. The results of the inquiries are expected this month. Citigroup's European bond syndication business has experienced a sharp decline since the August trades.
In the second half of last year, the world's biggest financial institution underwrote just Dollars 100m (Pounds 53.3m) of syndicated eurozone government bonds, which accounted for a mere 0.9 per cent of the market. This contrasted with a strong year for the bank in other markets. Citigroup traders shook the bond market by selling Dollars 11bn (Pounds 7.7bn) of eurozone government bonds in less than two minutes only to buy back 0ú4bn of them at lower prices soon after. ..TX- The bank is thought to have earned about ú17m on the trade, which prompted rivals to withdraw temporarily their price quotes from the electronic EuroMTS trading system, causing alarm at national Treasuries. Several European governments were angry about the threat to liquidity in their bonds. Citigroup subsequently apologised for the trade. which Chuck Prince, chief executive, described as knuckleheaded. Mr Prince promised that disciplinary action would be felt stingingly by those responsible. One European government official said the trade might may have been an attempt to compensate for tough trading conditions for fixed-income investors last year when bond yields fell sharply, against widespread expectations. Particularly the London office has struggled to adapt to market conditions, the official said.
