M&A

Fed Orders Citi to Refrain from Mergers

The board doesn't want Citigroup's attention diverted from compliance improvements ''by the demands that mergers and acquisitions place on manageme...
Stephen TaubMarch 21, 2005

The Federal Reserve Board has ordered Citigroup Inc. to get its internal controls and compliance in better shape before it pursues another acquisition.

The order, which was buried within the Fed’s 22-page report approving the bank’s acquisition of First American Bank of Texas, follows a series of embarrassments for Citigroup, including an investigation into its bond trading in Europe and the loss of its private-banking license in Japan.

“Given the size, scope, and complexity of Citigroup’s global operations, successfully addressing the deficiencies in compliance risk management that have given rise to a series of adverse compliance events in recent years will require significant attention over a period of time by Citigroup’s senior management and board of directors,” the report stated.

“The board expects that management at all levels will devote the necessary attention to implementing its plan fully and effectively and will not undertake significant expansion during the implementation period,” the report continued. “The board believes it important that management’s attention not be diverted from these efforts by the demands that mergers and acquisitions place on management resources.”

Tom Schlesinger, executive director of the Financial Markets Center — a research institute that has accused the Fed of being too permissive with financial institutions, according to The Wall Street Journal — told the paper that the order “is highly unusual given the Fed’s habit of rubber-stamping applications. In some respects, it’s a public spanking of Citi by the regulators.”

On March 1, Citigroup launched an ethics program aimed at improving training and accountability for managers and workers, according to the Associated Press. “Implementing the five-point plan is our top priority and it is the right way for Citigroup to engage in sustained long-term growth,” a Citigroup spokesman told the Journal.

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