Citigroup closing investment, real estate services in Japan

Actions follow closure of banking operation ordered by regulators

October 26, 2004|By BLOOMBERG NEWS

NEW YORK - Citigroup Inc., the world's biggest financial services company, will close its investment management and real estate advisory unit in Japan, five weeks after regulators ordered the firm to shut its private bank there.

Japan's Financial Services Agency ordered Citigroup on Sept. 17 to close its private banking business after it failed to make proper checks against money laundering. Regulators also uncovered fraud at its retail unit.

"Citigroup is looking to appease regulators and fulfill their demands that such an incident won't happen again," said Shoichi Arisawa, head of Iwai Securities Research Center in Osaka. "It's a big handicap, but the bank can become strong in private banking again, as local lenders are still groping for the business."

Citigroup shares, which are down 12 percent this year, rose 2 cents to close at $42.58 yesterday on the New York Stock Exchange.

"I would like to fully apologize to our customers for the problems that have occurred in our businesses in Japan," Citigroup Chief Executive Officer Charles Prince said before bowing in a traditional Japanese gesture of remorse at a news conference in Tokyo. He was in Tokyo to meet regulators after Citigroup submitted a business improvement plan Friday.

Citigroup "neither sought nor received assurances" the regulator won't file a criminal complaint against the lender or any of its present or past employees.

"I conveyed to [Prince] that participation and support from New York headquarters is indispensable," Hirofumi Gomi, commissioner of the FSA, said. "I asked for him to continuously monitor and follow up as the top manager."

Prince apologized repeatedly during their meeting yesterday, which lasted about 35 minutes, Gomi said.

Twelve officials in Japan have left the company and 11 have had their pay cut, Citigroup said.

Citigroup closed its Japan trust business, Cititrust and Banking Corp., because there were "internal control, compliance and governance issues in that subsidiary." Citigroup didn't elaborate on the issues at the unit, which has 150 employees.

Citigroup said Oct. 19 that three senior executives, including Vice Chairman Deryck Maughan, will leave the company, a week after Prince pledged to take "strong action" after the closure of its private bank in Japan.

Thomas Jones, who headed investment management, and Peter Scaturro, who ran private banking and reported to Jones, also left the unit.

In Japan, Charles Whitehead, who was Citigroup's Japan country officer, left, as did Koichiro Kitade, head of private banking. Samir Raslan replaced Kitade.

Citigroup said it hired Anthony Della Pietra Jr. as chief legal officer, and Jun Kadoda as chief financial and administrative officer in Japan. The lender will also hire a new chief compliance officer.

In New York yesterday, Citigroup was censured and fined $250,000 by the NASD, formerly the National Association of Securities Dealers, for failing to explain how its hedge funds would produce 15 percent annual returns and inadequately listing potential risks.

Citigroup neither admitted nor denied the NASD allegations, the NASD said. "We took immediate action and cooperated fully with the NASD to ensure that all materials comply with current NASD guidance," said Susan Thomson, a Citigroup spokeswoman.

Some of Citigroup's materials also included misleading charts on performance, according to the Washington-based regulator.

NASD said 95 Citigroup sales presentations, client letters and fact sheets included target return rates for the company's hedge funds, but didn't explain how it would reach the goals. About 45 documents failed to "include adequate risk disclosure" such as warnings that clients may lose most or all of their investments or that the funds' performance could be volatile, the association said.

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