Does Citigroup Have Emerging Markets Trouble?

By Pam Martens: January 7, 2015

Big Four Bank LogosBack on October 9, 2014 when the Dow Jones Industrial Average swooned 334 points, Citigroup lost 2.55 percent on the day, very much in line with its peers. On Monday of this week, when the Dow closed down 331 points, Citigroup pulled a little ahead of the pack in terms of losses, dropping 3.15 percent.

Yesterday, however, when the Dow closed down 130 points, or just 39 percent of Monday’s loss of 331 points, Citigroup pulled decisively away from its peers, losing 3.52 percent on the day to close at $50.70.

It’s relevant to note at this point that Citigroup’s stock would have closed yesterday at $5.07 rather than $50.70 had it not performed a 1-for-10 reverse stock split back in 2011, stripping its shareholders of 9 shares for each 10 they owned while levitating the price to a respectable level.

Citigroup back then was the poster child for the largest bank bailout in history, receiving $45 billion in TARP funds, over $300 billion in asset guarantees, and more than $2 trillion in low cost loans from the Federal Reserve to keep it afloat.

What might have been troubling the market yesterday about Citigroup? Bloomberg News reported on Monday that emerging-market debt traders Ilia Poliakov and Steven Gooden had up and left Citigroup. According to Bloomberg reporter Alastair Marsh “Poliakov, who traded sovereign bonds and created structured notes linked to emerging-market securities, left the U.S. lender after a 14-year career, according to one of the people, who asked not to be identified because they’re not authorized to speak publicly. Gooden also traded emerging market debt.”

A few weeks earlier, on December 18, analysts at Keefe, Bruyette & Woods issued a report on Citigroup’s exposure to emerging markets. The report noted that: “Although Russia is in focus these days, Citi actually has larger exposure to Brazil which has $27.4 billion of disclosed assets that represent 1.4 percent of the company’s total assets. Russia would be the second largest hot spot since Citi has $1.6 billion of net investment in Russia and total third-party assets of $7.4 billion in the company’s Russia subsidiary.”

The current price action in Citigroup is all the more troubling since it was Citigroup’s maneuvers last month that brought a rollback in a key Dodd-Frank financial reform. Citigroup was able to slip a provision into the spending bill needed to keep the government running. The rollback means that taxpayers will be on the hook again if an FDIC-insured bank like Citigroup blows up its derivatives book.

If you haven’t been in touch with your members in Congress in a while, this would be a good time to call and demand a prompt investigation of the whole Citigroup episode.

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