C - Citigroup Inc.

NYSE - NYSE Delayed price. Currency in USD
50.55
+0.20 (+0.40%)
At close: 4:02PM EDT
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Previous close50.35
Open52.12
Bid50.62 x 1400
Ask50.70 x 800
Day's range50.33 - 52.46
52-week range32.00 - 83.11
Volume21,846,493
Avg. volume31,497,349
Market cap105.235B
Beta (5Y monthly)1.81
PE ratio (TTM)6.96
EPS (TTM)N/A
Earnings dateN/A
Forward dividend & yield2.04 (4.04%)
Ex-dividend date01 May 2020
1y target estN/A
  • Will Deutsche Bank Come to Wirecard's Rescue? If Only
    Bloomberg

    Will Deutsche Bank Come to Wirecard's Rescue? If Only

    (Bloomberg Opinion) -- Deutsche Bank AG is lining up to buy a piece of history — a remnant of scandal-ridden Wirecard AG. It’s not the only one sniffing around. But however many expressions of interest there may be, and however credible the buyers, the proceeds from selling off even the best assets of the German payments company will be tiny relative to the losses incurred.When Wirecard was a stock market darling, investors weren’t piling into the shares because of its Wirecard Bank subsidiary, the piece that potentially interests Deutsche Bank. The lending arm was a sideshow as the rest of the operation appeared to expand. Of course, the growth reported by the group is now heavily in doubt following the admission that the accounts overstated cash balances by 1.9 billion euros ($2.1 billion).Deutsche Bank says it is considering providing financial support for Wirecard Bank should it be required. Precisely what that means is unclear. Wirecard’s bank is not subject to insolvency proceedings. If it needs assistance, there should be other avenues. It’s not Deutsche Bank’s job to be lender of last resort. But there could be some logic to a straight takeover at the right price.Extreme due diligence will be critical. Wirecard Bank has looked like a simple deposit-taking institution that’s been growing nicely. Question one is whether its 1.7 billion euros of deposits have stayed put as the parent company has unraveled. Then any buyer would need to kick the tires on the credit quality of the assets.And however much comfort Deutsche Bank got, this would be a tiny transaction. Even prior to Wirecard’s spectacular implosion, the unit’s book value was around 160 million euros. Credit quality will need to be robust to justify paying that.At least Wirecard’s creditors’ expectations are low. The group’s loans and bonds are trading at around 17% of face value, suggesting their owners expect to collectively get back around 400 million euros of the 2.3 billion euros they are owed (assuming Wirecard drew down all its revolving credit line in full). A jumbo convertible bond is being quoted even lower. That’s backed by Wirecard but issued out of a separate entity, creating doubt as to whether its holders’ claims would rank as highly as those of other creditors.It will take several years to adjudicate claims, so the expectation must be that recoveries will be slightly higher — but not much.Aside from the bank, the other asset likely to attract interest is Wirecard’s U.S. business, put up for sale earlier this week. This was acquired from Citigroup Inc. in 2017. The price wasn’t given, but Wirecard did reveal an associated $200 million foreign-exchange transaction for the purposes of the deal. It also said the acquisition would add $20 million to Ebitda. Take that as a base and assume a 10-15 times valuation multiple and an exit might raise $200-$300 million, according to Mirabaud Securities analyst Neil Campling.As for the remaining businesses, investors need to be optimistic to believe they are worth much. One explanation for the missing billions is that most of Wirecard’s operations have been loss-making for some time, and so never generated the free cash flow that was reported. Value them at, say, 100 million euros for the customer relationships and some tangible assets. Tot it all up and you can see why hopes are so faint. The one other source of compensation would be generated from claims against the company and its directors, falling back on insurance.Wirecard’s administrator says there are “numerous interested parties” in the company’s assets. Who wouldn’t want to nose around the books of this infamous fallen technology star? But beware of thinking that Deutsche Bank, or anyone else, will truly come to the rescue.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • SoftBank Stock Bounces to 2020 Peak as Buyers Look Beyond WeWork
    Bloomberg

    SoftBank Stock Bounces to 2020 Peak as Buyers Look Beyond WeWork

    (Bloomberg) -- SoftBank Group Corp. shares just reached a new high this year, propelled by a series of buybacks that have seen the stock recoup the losses suffered during the coronavirus market rout.The stock rose 2.6% on Friday to 5,778 yen ($54), the highest since July 2019. That’s more than double the level of a March low.The recovery is something of a vindication for CEO Masayoshi Son, who unveiled plans to sell 4.5 trillion yen of assets to reduce debt and bankroll record share buybacks. Son has frequently complained that SoftBank’s shares, even at their peak, trade at less than the value of its portfolio of investments.SoftBank has also had a series of wins over the same period, finally solving the puzzle of Sprint Corp. and T-Mobile Inc. with their merger completed in April, and seeing a welcome return to successful investment bets as online home-insurance provider Lemonade Inc. surged as much as 86% in its U.S. IPO. Thursday.“The steps being taken to improve its balance sheet, such as repurchase of its debt, are being recognized,” said Tomoaki Kawasaki, a senior analyst at Iwaicosmo Securities Co.SoftBank shares have had a volatile run over the past year as portfolio companies such as WeWork ran into trouble and the coronavirus hammered many of its businesses. That triggered a record 1.36 trillion yen operating loss for the last fiscal year. Optimists believe the worst is over for the company.“After the trillion-yen level writedowns last quarter, it’s not possible that it’ll be worse than that,” said Kawasaki.Citigroup Global Markets analyst Mitsunobu Tsuruo raised his price target for the stock by 100 yen to 7,200 yen on Wednesday, lifting his expectations for the company’s forthcoming first-quarter earnings and noting that there is “still plenty of room for the shares to advance” given the buybacks and steps to clean up its balance sheet.SoftBank has already repurchased 500 billion yen of shares based on a resolution adopted March 13, separate to its 2 trillion yen pledge. Under that larger program, it has already formally announced plans to buy 1 trillion yen of buybacks through next March, with Son indicating he hoped to carry out the full amount. Investors can “feel confident” in buying and holding SoftBank shares until the buybacks are 90% done, according to Atul Goyal, senior analyst at Jefferies Group. Whether the shares can continue their increase depends on future catalysts, Iwaicosmo’s Kawasaki said.“The shares will need another catalyst that boosts shareholder value, such as the second Vision Fund,” he added.Son said in May that SoftBank will use its own cash for the second Vision Fund for now, until an improved investment performance attracts outside partners.(Adds Jefferies comment in fourth-last paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Citi commodity business hits record in first quarter on volatile markets
    Reuters

    Citi commodity business hits record in first quarter on volatile markets

    Citigroup's <C.N> commodity business soared to record revenues in the first quarter, mainly due to sharp swings in prices such as oil during the COVID-19 pandemic, an executive said. Trading activity has levelled off recently, but there was still strong interest in structured deals, such as financing of base metals, Jose Cogolludo, global head of commodities, told a webinar. "We've seen a record level of client activity in the first quarter and that extended to April," Cogolludo said, without providing figures.

  • Sanctioned Billionaire Finds a Haven in Tiny Congolese Bank
    Bloomberg

    Sanctioned Billionaire Finds a Haven in Tiny Congolese Bank

    (Bloomberg) -- A year ago in June, a group of bankers marched into a U.S. Treasury office in Washington on perhaps the most important mission of their careers: to save a country from financial collapse. Among them was Willy Mulamba, Citigroup Inc.’s top executive in the Democratic Republic of Congo, a resource-rich but devastatingly poor nation in central Africa.Mulamba, a 51-year-old Congolese banker who had returned home after years abroad, was part of a small team desperate to dissuade Treasury officials from cutting the nation off from the U.S. banking system, even though corruption scandals swirling around recently departed President Joseph Kabila had infected several local banks. Global firms including ING Groep NV and Commerzbank AG had stopped processing most dollar transactions from Congo out of concern about violating U.S. anti-money-laundering rules or sanctions imposed on generals, government officials and, in December 2017, on one of Kabila’s most important financiers: Dan Gertler. The Israeli billionaire, Treasury said, had amassed a fortune “through hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals.”By the time of the meeting, Citigroup was handling more than 80% of Congo’s international dollar transactions, an exposure well beyond the bank’s comfort level. Citigroup had come to Congo in 1971 and weathered decades of dictatorship, corruption and war. It would be an unusual twist of fate if this bastion of American finance was forced to close its Congo branch because of sanctions imposed by its home country.More importantly, Mulamba knew that if Citigroup pulled out, the dollars would stop flowing to Congo. That would be tantamount to a death sentence for an economy where 90% of bank deposits and loans are in dollars. Congo’s 84 million people would face hyperinflation and financial uncertainty, and its businesses could seize up.Across the table from Mulamba and his colleagues was Sigal Mandelker, then Treasury undersecretary in charge of the Trump administration’s burgeoning roster of sanctions. Mulamba told her the bankers were doing their best to respect the restrictions, even though it exposed them to threats and lawsuits from powerful people in Congo. Mandelker promised to work with the group to help them comply, according to six people who attended the meeting. That was enough for the bankers.Returning to Kinshasa, Congo’s capital, the bankers felt reassured. They held a press conference stating their intention to toughen controls, and Mulamba delivered a clear warning. “I ask our banks and our monetary and political authorities to focus on the questions of the fight against money laundering and terrorist financing,” he said. “We are a strategic sector, and we have to be protected.” To anyone who knew Congolese finance, it was obvious what he was saying: Stop holding suspect money, because one slip up could ruin all of us.What the bankers didn’t know was that a mile down Kinshasa’s main boulevard from where the press conference took place, in a two-story building with reflecting windows, one bank had made holding suspect money its business model, according to documents provided to Paris-based anti-corruption group Platform to Protect Whistleblowers in Africa, known by its French acronym Pplaaf, and shared with Bloomberg News.The bank was the Congolese subsidiary of Cameroon’s Afriland First Bank Group. Citigroup wasn’t processing dollar transactions for the unit, but it serviced the parent company — one of only two so-called correspondent banks doing so, according to Afriland’s website.In January 2018, a few weeks after the U.S. imposed sanctions on Gertler, a family friend named Shlomo Abihassira had walked into Afriland’s Kinshasa headquarters and opened an account for a newly registered company with the unpronounceable name RDHAGD Sarlu, bank documents show. Over the next five months, Abihassira, who lives in Israel, made 17 deposits totaling $19 million. That August, he transferred the funds in one go to another Afriland account registered to a company called Dorta Invest SAU, according to bank records. Dorta Invest, set up by French businessman Elie-Yohann Berros, sent most of the funds abroad to recipients, most of whom aren’t identified in the documents.A little more than a year after Abihassira opened the account, whistle-blowers shared with Pplaaf a cache of Afriland documents describing the flow of money. With the help of London-based corruption watchdog Global Witness, researchers spent more than a year making sense of the transactions. They scoured publicly available company registers, statements from firms and social media.What they found was a network of companies that emerged in Congo after the sanctions went into effect. Although Abihassira and Berros say they have no financial ties to Gertler, their associations with others connected to the Israeli businessman raise questions about whether they were effectively helping him continue doing business after the restrictions were in place.Whatever conclusions are ultimately drawn about Gertler’s relationship with Afriland, the tangle of undisclosed, informal linkages offers a view into what might be described as the last-mile problem for financial sanctions regimes. Regulators in Washington can impose weighty know-your-customer obligations on banks such as Citigroup. But on the fringes of banking, in corners of the world where corruption runs rampant, rules based on legal concepts like beneficial ownership or majority control can seem ineffectual in the face of personal loyalties, unwritten obligations and impenetrable corporate records. In the end, it’s a system that relies on whistle-blowers to expose the truth.“This is how, despite being sanctioned, Gertler appears to have continued reaping the vast financial benefits of his business activity in DRC — a country where over 72% of the population lives on less than $1.90 a day,” Pplaaf and Global Witness wrote in a report published on Thursday. The report said the organizations couldn’t prove that the network was used to evade U.S. sanctions and it doesn’t allege any criminal behavior. Gertler declined to comment for this story, or for the report. But in a series of letters to Bloomberg News and the two groups, his lawyers at Carter-Ruck in London said the Afriland documents do not show that Gertler engaged in sanctions evasion. The lawyers said he has no business relationship with Abihassira or Berros. They also said the bank records were stolen, that some documents were falsified and that an internal audit found that one of the whistle-blowers stole money from unrelated client accounts. Neither Afriland nor Gertler’s lawyers provided evidence for that last claim or proof that documents had been fabricated.Bloomberg, Le Monde in Paris and TheMarker, a business publication in Israel, were given access to the documents, findings and other information before the report’s release. Over the course of several months, Bloomberg independently obtained additional documents and spoke with people on three continents involved in banking in Congo and the U.S. and with knowledge of sanctions enforcement to confirm and complement the findings.The report describes how Gertler appears to have been connected to a complex structure to move money abroad, with more than a dozen shell companies, subsidiaries, local and foreign intermediaries and an octogenarian living in Moscow. While the bank documents provide a window into the network, they don’t show why transactions were made or where, in many cases, the money ended up. But they do offer clues.At the center of the network was Afriland. By the end of 2018, deposits by companies and individuals connected in some way to Gertler made up more than one-third of the Kinshasa unit’s total, which had jumped almost fivefold to $279 million from a year earlier, according to a PwC audit reviewed by Bloomberg. Whether Afriland knew it was handling dollars linked to Gertler or its compliance procedures weren’t thorough enough, the bank and its employees were exposing themselves to possible sanctions and fines if U.S. law was being violated.Afriland DRC and its parent company in Cameroon didn’t respond to numerous requests for comment. The Congo unit told Global Witness and Pplaaf that it hasn’t violated any regulations or assisted any of its customers in circumventing U.S. sanctions.Abihassira, whose father is Gertler’s rabbi in Israel, said in an email that he opened the account at Afriland to invest in Kinshasa real estate and that the company name stood for Royal Development Housing and General Design. Abihassira, who had little experience in Congo, confirmed the deposits and the transfers to Dorta Invest. He said he was returning money he borrowed from Berros after giving up on his real estate dreams.Patrick Klugman, a lawyer in Paris who represents Berros, matched the account given by Abihassira. He said his client was a businessman whose investments in Congo had nothing to do with Gertler.That lack of connection doesn’t help explain why, just a week after sanctions were imposed, Berros set up a company with an identical name — Fleurette Mumi Holdings — to one previously used by Gertler. Or why Abihassira hired a lawyer who has worked for Gertler to register his company. Or why Berros and Abihassira opened accounts at the same small Congolese bank that Gertler, his companies and several associates were using.Abihassira said the timing was coincidental and that he didn’t know the Congolese lawyer he hired had worked for Gertler. The lawyer, Simon Niaku, said in an email that he had not helped Gertler or any of his firms since the sanctions were imposed and had never met him, although his email signature bore the name and logo of Jarvis Congo, one of Gertler’s sanctioned entities. Within an hour, Niaku sent a second email requesting that Bloomberg ignore everything in the previous message that wasn’t about him. He didn’t reply to a follow-up email asking about his connection to Jarvis.Berros told Global Witness and Pplaaf that he copied Gertler’s company name because he saw him as an entrepreneurial role model.No other businessman wields the influence Gertler has had in Congo over the past two decades. The scion of Israeli diamond dealers, he mastered the family trade as a boy. At the age of 23, Gertler landed in Congo, stepping into the ruins of Mobutu Sese Seko’s 32-year reign. A rabbi in Kinshasa introduced him to Joseph Kabila, then 26, who became head of the army after his rebel leader father toppled Mobutu. The younger Kabila assumed the presidency four years later.Over more than 20 years of friendship, Gertler lobbied the White House on Kabila’s behalf, conducted secret peace talks and became Congo’s honorary consul in Israel. At first, Gertler dealt in gems, at one point holding a monopoly on Congo’s diamond exports. But the country’s real riches are its copper and cobalt deposits. Gertler started facilitating access for mining companies such as Glencore Plc and Eurasian Natural Resources Corp. On top of that, as Bloomberg News has reported over the past decade, the Congolese government sold him cut-price mining stakes, often in the lead-up to elections. Instead of trading in packages of precious stones, Gertler was now dealing in enormous mines.But his entanglements with Congolese politicians came back to haunt him. The U.S. Justice Department opened investigations into Glencore and New York-based hedge fund Och-Ziff Capital Management LLC. The U.K. Serious Fraud Office launched separate probes into Glencore and ENRC. Among other things, investigators looked at deals involving Gertler.In a 2016 settlement with the Justice Department and Securities and Exchange Commission, Och-Ziff, since renamed Sculptor Capital Management Inc., admitted to its role in a bribery conspiracy in Africa. An unidentified Israeli businessman, who was said to be Gertler in a related civil case, paid more than $100 million to Congolese officials over a decade to gain access to mineral rights. Gertler wasn’t charged with a crime in that case or any other, and he has denied wrongdoing. Glencore has said it is cooperating with the investigations, and ENRC has said it did nothing wrong.Meanwhile, Kabila’s grip on power was loosening. He had won elections in 2006 and 2011, but the constitution barred him from running for a third term. He delayed the vote, and when his security forces tortured and killed protesters, the U.S. imposed sanctions on some of his generals to pressure him to hold elections and curb human rights abuses. When that didn’t work, it went after Gertler, who “acted for or on behalf of Kabila” to set up offshore leasing companies, the Treasury Department said when it announced the action in December 2017.The sanctions prohibited Gertler, any companies in which he owned a majority stake and 19 designated entities linked to him from doing business with U.S. banks or effectively making transactions in dollars. Any assets under U.S. jurisdiction could also be frozen. In June 2018, Treasury added another 14 entities to the list because of their alleged links to Gertler.Not long before the December 2017 announcement, Gertler reincorporated and relocated several of his companies to Congo from offshore jurisdictions. Fleurette Mumi Holdings Ltd., a British Virgin Islands-registered company that collects royalty payments from Glencore’s two copper and cobalt mines, was moved to Congo and renamed Ventora Development Sasu, according to company records. The entity that had exploration rights for an oil block on Congo’s eastern border also was moved and renamed. And Gertler established a new holding company in Congo called Gerco SAS, whose owners are his wife and nine family members, filings show.Some banks in Congo, including Citigroup, had long refused to take on Gertler as a client, according to people familiar with the industry. But Afriland opened accounts for his new companies, as well as for Gertler, bank documents show. It did the same for Pieter Deboutte, the long-serving head of Gertler’s operations in Congo, who’s also sanctioned. Deboutte said the funds in his account were for private use.In all, Pplaaf received records for 20 accounts that can be traced to Gertler or people connected to him through common directors, lawyers, addresses or shareholdings. Some, including ones for Gertler and Ventora, are in euros or Congolese francs. Others are in dollars.Banks conducting transactions involving the U.S. financial system, whether based in the U.S. or abroad, are generally barred from processing payments involving sanctioned entities and individuals. Transactions in euros or other currencies also can run afoul of the Treasury Department if they involve a U.S. person or are deemed to be for the purpose of evading sanctions. In addition, the U.S. urges caution when considering transactions with entities that a sanctioned person “may control by means other than a majority ownership interest.”The bank records for the 20 accounts cover November 2017 to May 2019. Because money often moved among companies or individuals, and sometimes appeared to flow back again, it’s impossible to tally a total without counting some funds twice. But Berros’s Dorta Invest was likely the biggest recipient, recording $49 million of deposits in a five-month period.A week after sanctions were imposed, Berros registered a company in Hong Kong called Fleurette Mumi Holdings, identical in name to one of Gertler’s BVI entities. Berros told Global Witness and Pplaaf that he started planning the venture before Gertler was sanctioned but never got permission to use the name. His lawyer, Klugman, said Berros abandoned the project when he heard about the sanctions.Berros’s sudden success in securing rights from Congo also raises questions. A month after registering Evelyne Investissement SAU in September 2018 he obtained the rights to develop cobalt and copper permits bordering one of Glencore’s flagship operations. It was the kind of transaction Gertler would have been proud of: Out of nowhere, a new entrant to the industry positioned himself in the premier league of resource deals.In December 2019, Glencore said it had agreed to pay state-owned mining company Gecamines as much as $250 million for land rights adjoining one of the world’s biggest copper-cobalt mines. Some of these sites overlap those acquired by Evelyne. Glencore said in an email that Gecamines agreed to hand over the purchased territory unencumbered by claims from third parties such as Evelyne when the deal closes and that it had obtained assurances that none of its funds will benefit any sanctioned entities. Glencore also said it understands that Evelyne is now part of Eurasian Resources Group, the parent company of former Gertler partner ENRC, but Berros’s lawyer Klugman said his client remained the owner and that neither Gertler nor any of his companies has any association with Evelyne. ERG declined to comment, and Gecamines didn’t respond to requests for comment.An 87-year-old Moscow-based businessman named Ruben Katsobashvili loaned Berros $10 million for his mining project, Klugman said. A company registered under Katsobashvili’s name also bought its own copper and cobalt deposits for $75 million, according to a copy of the agreement and Gecamines financial statements. Like Dorta Invest, two companies belonging to Katsobashvili were established in Congo soon after Gertler was added to the sanctions list. Katsobashvili was also the source of the funds that Berros invested in Abihassira’s real estate project, Klugman said.A Wikipedia page created by an employee at one of Katsobashvili’s companies describes him as a billionaire commodities trader born in Georgia, the former Soviet republic. The page says Katsobashvili was a chess prodigy and the CEO and founder of several energy companies. But neither he nor any of those entities show up in company registers in Georgia or Russia. A company he controls in the U.K. lost 200,844 pounds ($250,000) in 2018, according to the most recent accounts. And a Swiss firm he owns hasn’t filed paperwork with the authorities there since 2016, save for a recent change in director, a public register shows.Katsobashvili owns a three-room apartment on the seventh floor of a 24-story residential building in a middle-class Moscow neighborhood. It was valued at about $380,000 in 2017, according to Russian land records. Russian vehicle records show that as of 2016 he owned a 2007 Peugeot 407. When a Bloomberg News reporter called Katsobashvili in June, he handed the phone to his wife, who said he couldn’t hear very well. She referred Bloomberg to Klugman, who also represents Berros. Klugman said Katsobashvili had set up a gold-trading company in Congo in 2012 that had no ties to Gertler, but Bloomberg couldn’t find any trace of it in public corporate registries.How Gertler, Berros, Katsobashvili and others came to have accounts at Afriland is a story that begins in 2006, when the bank opened an office in Congo. Afriland’s founder, Paul Fokam, presents himself more as an anti-poverty messiah than a banker, evangelizing about generating wealth through grassroots businesses. The bank’s expansion has also made him rich. Forbes says he has a fortune of $900 million, making him the second-wealthiest man in francophone Africa, a region of more than 20 countries.People familiar with the bank say that until Gertler was sanctioned they couldn’t recall a transfer of more than $500,000 or the subsidiary holding more than $2 million in cash on site. But in 2018, Afriland’s total assets more than tripled from a year earlier to $351 million, according to the PwC audit. Income from banking operations more than doubled to $16 million that year, with transfer and foreign-exchange fees making up 80% of the total.In Congo and Cameroon, as in the U.S., banks are required to know their customers and report suspicious transactions to regulators. They’re supposed to establish who owns an account or makes a transfer, what their reason for a transaction is and where they obtained the funds. Afriland’s due diligence left much to be desired, according to documents provided to Pplaaf. For one person who withdrew $14 million from Dorta Invest’s account, the bank recorded just a single name.PwC didn’t raise questions in its audit about Afriland’s clients, even though it cited a 28.5 million-euro loan to “a company which is a related party to another company under sanctions from the authorities.” The auditor didn’t suggest this transaction was related to Gertler and said it didn’t affect its overall conclusion. PwC declined to comment, saying it couldn’t discuss matters relating to a client. Fokam didn’t respond to requests for comment sent to the bank and to an institute he heads.As global lenders began limiting their exposure to Congolese banks amid an expanding U.S. sanctions program, it became difficult for Afriland’s Congo subsidiary to find a partner that would clear its dollars. So it had to rely on its Cameroonian parent to conduct business in U.S. currency, a practice known as nesting. That entity has two correspondent banks that allowed Afriland customers in Congo to access the U.S. financial system. One is Citigroup.Correspondent banks are required to conduct due diligence on the financial institutions they service — to know their customers, in anti-money-laundering parlance. But they aren’t required to do the same for their customers’ customers, unless they suspect those clients are dealing in illicit funds. Citigroup said it couldn’t comment about clients but that its correspondent banking network “is fully compliant with local and international laws.”A person familiar with the biggest clients at Afriland’s Congo unit recently ran a finger down a list of the companies identified in the PwC audit, pointing them out one by one. Almost every one, the person said, was connected to Gertler.Gertler, who lives in Israel, has tried to get the sanctions lifted. He hired former FBI Director Louis Freeh and former Harvard law professor Alan Dershowitz, who represented Donald Trump at his impeachment trial, to help make the case. Dershowitz acknowledged in an email that he’s working to get Gertler delisted. Freeh didn’t respond to requests for comment.For a while, despite the sanctions, Gertler’s status in Congo didn’t change much. And Kabila, who allowed elections to take place in December 2018, retains immense influence even though his handpicked successor didn’t win. The new president, Felix Tshisekedi, formed a coalition with Kabila, whose allies had secured commanding majorities in both chambers of parliament, as well as control of most governorships and provincial assemblies. Key ministers in Tshisekedi’s cabinet are Kabila loyalists. Despite evidence of fraud obtained from leaked electronic polling data showing that neither Tshisekedi nor Kabila’s candidate won the election, the results stood.Erich Ferrari, a Washington lawyer representing Kabila, said in a letter marked “cease and desist,” that the elections were legitimate, certified by Congo’s constitutional court and accepted by the U.S. and United Nations. He also denied that the legal basis for the sanctions against Gertler had anything to do with his alleged dealings with Kabila or that the ones against officials in his government were intended to pressure him to hold elections.But desperate for financial support from the International Monetary Fund and other donors, Tshisekedi has been making moves to clean up corruption. In December, a prosecutor opened an investigation into how Gecamines used a 128 million-euro loan Gertler gave the mining company before sanctions were imposed. That kind of scrutiny from the Congolese authorities is unprecedented. While Gertler isn’t under investigation, government mining officials face questions about where the money went, according to two people familiar with the case. In June, Tshisekedi’s chief of staff was convicted of corruption charges and sentenced to 20 years in prison, a verdict he’s appealing.If the spotlight shines on Afriland’s Congo unit, that could make things worse for Gertler. It could also put pressure on Citigroup to end its banking relationship with Afriland’s parent, or lead the U.S. to take further action — the scenario Willy Mulamba feared when he met with Treasury officials last year.Still, recent anti-corruption actions give him some hope. “The new government recognizes the need to be part of the global financial ecosystem if the country is to attract investment flows and see growth,” Mulamba says. “As such, they are working with Citi, the U.S. government and others to make this happen.”If it doesn’t happen, one former president, one businessman and one tiny bank could cast a country deeper into ruin. For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • China Upstart CEO Steps Down After Building $44 Billion Fortune
    Bloomberg

    China Upstart CEO Steps Down After Building $44 Billion Fortune

    (Bloomberg) -- Colin Huang stepped down as chief executive officer of Pinduoduo Inc. after building the five-year-old startup into a force in China’s e-commerce industry and, in the process, becoming one of the country’s richest people.He’s turning the role over to Lei Chen, another founder at the Shanghai-based company, effective immediately, PDD said in a letter to employees posted on its website. Huang, 40, will remain chairman.“I hope that through the management changes, we can gradually hand over more managerial duties and responsibilities to our younger colleagues, give space and opportunities for the team to grow, and drive Pinduoduo to become a more mature company with continuous entrepreneurial spirit,” Huang wrote in the letter.While tech founders often eventually cede management duties to lieutenants, Huang is handing over the reins just a few years after PDD’s start. Huang and his co-founders began the group-shopping app in 2015 at a time when Alibaba Group Holding Ltd. seemed to have a lock on the e-commerce business in China.But PDD provided an innovative service with discounted goods and customized offerings, and went public in 2018. The company’s shares have soared more than four-fold since then and its market cap is about $102 billion. Huang’s net worth is $44.3 billion, the third-highest in China, according to the Bloomberg Billionaires Index.Analysts at Jefferies and Citigroup Inc. said the move was unexpected and a surprise. PDD’s shares were little changed in U.S. trading.Huang, previously an engineer at Google, said in the letter that he had transferred around 371 million ordinary shares currently under his name to the Pinduoduo Partnership, and that he wanted some of the stock to be used for research and social responsibility. That transfer is equal to about 7.7% of total shares, he said. In addition, Huang said he had officially set up a charity foundation and that together with the founding team, had donated to it around 114 million Pinduoduo shares, or about 2.4% of total shares.In a separate Q&A circulated to media, Huang said he would step back from day-to-day management to work on the company’s long-term strategy and corporate structure, and devote more time to fundamental research that could drive the future of PDD.A data scientist by training, Chen has served as chief technology officer since 2016. He said he will focus on growing the company’s newer business units, citing its shipping information system as an example. “This division of labor will help us steer the company in its next phase of growth and development,” Chen said.(Adds more detail throughout)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Citigroup pulls back on office return plans
    Reuters

    Citigroup pulls back on office return plans

    Bloomberg News reported the news earlier on Wednesday. Citi will delay plans to bring back a small percentage of workers in 13 states, the Bloomberg report said, citing a person with knowledge of the matter.

  • Citi to Boost Commercial Banking in Nordics Amid Coronavirus Woes
    Zacks

    Citi to Boost Commercial Banking in Nordics Amid Coronavirus Woes

    Citigroup (C) to expand commercial banking operations in the Nordics to grab opportunities and cater to clients' needs amid the coronavirus pandemic.

  • Citi’s Brazil CEO Works in a Near-Empty Tower Handling a Loan Surge
    Bloomberg

    Citi’s Brazil CEO Works in a Near-Empty Tower Handling a Loan Surge

    (Bloomberg) -- Citigroup Inc.’s Sao Paulo building sits nearly empty these days but for the 17th-floor office of Marcelo Marangon, who still makes the trek every day to oversee what’s become a surge in lending sparked by the Covid-19 pandemic.“It’s important for people to see me here,” Marangon, Citigroup’s chief executive officer for Brazil, said in a phone interview, referring to video conferences he conducts. He said working in the office helps him “better communicate globally, manage the crisis, offer comfort to employees and understand the needs of our clients.”About 98% of Citigroup’s 2,000 employees in Brazil are working from home as the pandemic races across the country, which is suffering the world’s second-highest case count, behind the U.S. The economic fallout has been devastating, with the bank’s economists predicting a 6.5% contraction this year.In response, many large Brazilian companies have been trying to obtain “liquidity cushions,” Marangon said. Citigroup’s local loan book jumped 30% in March from three months earlier, and grew an additional 5% in April, he said.Citigroup approved a credit line of as much as 750 million reais ($140 million) to help rescue the nation’s power sector, part of a syndicated loan being organized by BNDES, the government development bank, according to Marangon.The economic contraction and a government deficit estimated at 11% of gross domestic product could end up being even worse, Marangon said, considering that the figures are based on predictions that the economy will be fully reopened by August, “which today seems highly improbable.”Loan ProvisionsWith credit risk rising in Brazil, Citigroup shrank its proprietary-trading book in the country and boosted its provisions for corporate-loan losses there, a move that contributed to a 3% reduction in first-quarter earnings from the nation, Marangon said. But profit margins expanded as the volume of credit, derivatives and trading for clients increased and costs remained under control, he said.Citigroup didn’t reduce its workforce in Brazil and has no plans to do so in the second half of the year. It’s yet to decide when it will start bringing employees back to the office.Marangon said the bank won’t rely solely on guidance from local officials, making its decision on criteria such as “the flattening of the curve for new infections, number of deaths, the availability of hospital beds, among others.” A crisis committee meets every day to discuss those matters, he said.Citigroup CEO Michael Corbat said in May that, unlike some of his competitors, he’s not considering the option of letting workers stay at home permanently after the pandemic ends. The New York-based bank has about 200,000 employees around the world.Citigroup sold its retail division in Brazil to Itau Unibanco Holding SA in 2017 for an announced value of 710 million reais. The private-banking business, which wasn’t included in the deal, was restructured to eliminate services such as local bank accounts and credit cards. Citigroup also realigned its strategy for the business to focus on higher-net-worth clients with at least $10 million invested with the company.The bank hired Itau’s wealth-management director, Eduardo Estefan Ventura, to lead its Brazil private-banking business, starting last month. The previous head, Cesar Chicayban, was named to oversee Citi Private Bank for New York City and Long Island.“We want to grow our private banking business very aggressively, with a focus on our offshore products,“ Marangon said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Former CFPB head: SCOTUS decision allows consumer watchdog to 'go forward'
    Yahoo Finance

    Former CFPB head: SCOTUS decision allows consumer watchdog to 'go forward'

    Former CFPB head Richard Cordray says Monday's Supreme Court ruling would mean quick removal of the agency's Trump-appointed director if the Democrats win the White House.

  • Citi Maintains Future Dividend Payments Amid Coronavirus Woes
    Zacks

    Citi Maintains Future Dividend Payments Amid Coronavirus Woes

    Citigroup (C) to maintain steady payment of dividends over the next quarter and thereafter, with its solid capital and liquidity position amid the coronavirus crisis.

  • Standard Life’s Outgoing CEO Gets A for Effort, B for Achievement
    Bloomberg

    Standard Life’s Outgoing CEO Gets A for Effort, B for Achievement

    (Bloomberg Opinion) -- As Keith Skeoch prepares to step down as chief executive officer of Standard Life Aberdeen Plc, the report card on his tenure reads: “A for Effort, B for Achievement.”By the time he leaves in the third quarter, it will have been three years since he and former Aberdeen Asset Management CEO Martin Gilbert engineered the merger of their respective firms in August 2017. The deal was designed to create an asset manager that could compete in what Gilbert dubbed “the $1 trillion club.” The reality has turned out to be somewhat different.Size has proven to offer scant defense against the trends buffeting the fund management industry, including money flowing away from active managers and into low-cost, index-tracking products, increased regulatory scrutiny and relentless downward pressure on what firms can charge for managing other people’s money.It’s impossible to test the counterfactual Skeoch has stressed: that Standard Life and Aberdeen would have fared even worse as standalone firms. But for shareholders, the union has been less than blessed.Douglas Flint, who took over as chairman in January 2019, has been a catalyst for change. Two months after his arrival, the company abandoned the dual CEO structure it had operated since the merger, with Skeoch taking sole control. Gilbert said he wanted to avoid having Flint “tap me on the shoulder and say ‘come on, it’s time to go.’” Flint’s previous role as chairman of HSBC Holdings Plc was probably instrumental in the choice of Skeoch’s successor, Stephen Bird, who ruled himself out as a potential candidate for the top job at HSBC earlier this year. Bird’s career experience during 21 years at Citigroup Inc., most recently as head of its global consumer banking unit, after acting as the bank’s top executive in Asia, gives a strong hint as to where Standard Life Aberdeen expects its future growth to come from.Geographically, Asia is at the top of every fund manager’s list of potential customer growth; Bird’s contact book should help open doors in the region. And Standard Life Aberdeen’s wealth management division, which “has not lived up to potential,” according to a Tuesday research note from Hubert Lam at Bank of America Corp., will be in renewed focus.I wrote in December that Flint might be tempted to tap Skeoch on the shoulder if the firm’s performance didn’t improve. Still, his departure is a surprise, and it’s a shame he couldn’t go out on a higher note by delivering a boost to assets under management and a share price worth more than half its value since the merger. Whether his successor’s lack of asset management experience will prove a blessing or a curse remains to be seen.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Here's what the most sophisticated investors are doing with their cash during the market rally
    Yahoo Finance

    Here's what the most sophisticated investors are doing with their cash during the market rally

    Not everyone in the market is buying hand over fist. Interactive Brokers founder and chairman Thomas Peterffy joins Yahoo Finance to discuss markets.

  • Saudi’s Samba Shares Surge After $15.6 Billion Takeover Bid
    Bloomberg

    Saudi’s Samba Shares Surge After $15.6 Billion Takeover Bid

    (Bloomberg) -- Samba Financial Group jumped in Saudi Arabia after rival National Commercial Bank, the kingdom’s largest lender by assets, offered to acquire it for as much as $15.6 billion.The shares advanced 9.9% to 26.30 riyals in Riyadh on Sunday, while National Commercial Bank rose 5%. Last week, National Commercial Bank proposed paying as much as 29.32 riyals per share for Samba, a premium of about 27.5% to its closing price on Wednesday.Saudi Arabia has been taking steps to shore up its banking sector from the double whammy of the coronavirus shock and lower oil prices. Lenders in the world’s largest oil exporter are expected to be hit hard as lockdown measures and lower spending impact earnings.The country’s Public Investment Fund is the major shareholder in both lenders, with a 44.3% stake in National Commercial Bank and 22.9% of Samba. The combined entity would have assets of about $210 billion, making it the third-largest in the Middle East behind Qatar National Bank QPSC and First Abu Dhabi Bank PJSC, according to data compiled by Bloomberg.Here’s what analysts are saying about the deal:EFG-Hermes says the transaction appears to be at a “pretty advanced” stage and that the valuation is fair“If you have a common shareholder that always makes things easier, and I think that is one of the reasons this deal was announced,” analyst Shabbir Malik said in a telephone interview“In some ways the two banks are complementary. In terms of capital, Samba has a very strong capital position, so that can be beneficial to the merged entity. Liquidity-wise, both banks are very good. In terms of CASA funding, NCB is stronger than Samba”“Samba can lift its profile, lift its profitability, at a much faster pace than it would have been able to do it by itself”CI Capital says the deal gives NCB “additional market share in the corporate” business and “gives it more capacity to compete inside and outside of the kingdom”“We’re very happy to see a swap ratio right at the very beginning, it never happened before,” said Sara Boutros, senior analyst of real estate and financials, in a telephone interview“Operationally, we thought Riyad Bank made more sense, because Riyad would’ve given NCB the push it needed in the retail space.” Still, valuation for Samba is “very reasonable, we’re very positive on the pricing”Credit Suisse’s Ahmed Badr, head of Middle East and North Africa equities, said there is a need for consolidation within Saudi Arabia, and the deal could create “a national champion”“Saudi has a long-term infrastructure plan and you need a national champion to be the lender for that,” he said in an interview with Bloomberg TV“The question is whether NCB is going to be able to better efficiently utilize Samba’s balance sheet to deliver high ROEs”SICO BSC considers the valuation “to be fair, considering Samba is an under-leveraged bank with a fairly clean balance sheet,” according to Chiro Ghosh, vice president for financial institutions“The large equity book size, would present an inherent advantage in lending to large corporations. We also expect the merged entity to next target regional projects.”“The merged entity would have a healthy diversity, with a strong presence in consumer and reasonable international operations through NCB, while Samba would provide strong corporate sector presence”Citigroup Inc. upgraded Samba shares to buy after the announcement, citing “multiple levers to synergies”Analysts Rahul Bajaj and Ronit Ghose expect a 3%-6% accretion for NCB shareholders by 2023, with the return on tangible equity for the combined entity of 15% by 2023Pro-forma valuation for the merged business generates fair value of 175 billion riyals ($46.7 billion)Citigroup increased the price target for Samba to 30 riyals from 23 riyalsRead more:Saudi Bank NCB Plans $15.6 Billion Takeover of Rival SambaMiddle East Inks $25 Billion of Deals Defying Virus GloomArabian Gulf Dealmaking Surges in Move Away From Oil: Chart(Updates share performance in second paragraph, adds second chart and more comments)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Fed to cap bank dividend payments after completing stress test, COVID analysis
    Yahoo Finance

    Fed to cap bank dividend payments after completing stress test, COVID analysis

    The Fed will bar big banks from increasing their dividend payments, following the central bank’s annual stress tests that included a “sensitivity” analysis incorporating the impact of the COVID-19 crisis.

  • Investing.com

    Day Ahead: Three Things to Watch for June 26

    By Christiana Sciaudone

  • Citigroup Rises 23.6% QTD: Will the Rally Continue in 2H20?
    Zacks

    Citigroup Rises 23.6% QTD: Will the Rally Continue in 2H20?

    Backed by the gradual reopening of the economy and strong fundamentals, Citigroup's (C) stellar quarter-to-date performance is expected to continue in the near term.

  • Can Wirecard Be Saved? And Should It Be?
    Bloomberg

    Can Wirecard Be Saved? And Should It Be?

    (Bloomberg Opinion) -- Following Wirecard AG’s confirmation on Monday that 1.9 billion euros ($2.1 billion) of the cash it reported probably doesn’t exist, the question arises whether the German electronic-payments group will survive in its present form.Even if Wirecard can avoid a liquidity crunch, there’s the issue of whether a fintech can hang onto its customers and partners after revealing such an epic failure of internal controls and risk management. The company authorizes and processes electronic payments for both business clients and consumers, so trust is essential. New boss James Freis will have to keep creditors at bay, and overhaul a rotten corporate culture. The stock has plunged 85% in the three days since Wirecard’s auditor, Ernst & Young, said roughly fourth-fifths of the net cash reported in the last audited accounts couldn’t be verified. Chief Executive Officer Markus Braun resigned, yet the company is still capitalized at almost 2 billion euros ($2.2 billion). Shareholders think there’s still some value to be salvaged.Wirecard is exploring various restructuring measures and disposals to make sure it can keep the lights on. Yet potential acquirers will worry if there are any more nasties still to be found and what the quality of the underlying technology is really worth — the large profits it reported previously are open to considerable doubt. At the very least it might want to consider changing the company name, which has become a byword for corporate and regulatory failure. That’s a suggestion from Citigroup analysts too.Still, a glance at Wirecard’s bonds doesn’t suggest much confidence in Freis’s rescue mission. The 500 million euros of senior unsecured debt is priced at just 26 cents on the euro — the bond market’s way of saying, “Abandon hope all ye investors who enter here!” It’s not just bondholders who are sweating. The lending banks will be too. Wirecard has a 1.75 billion-euro revolving-credit facility that’s now about 90% drawn, according to Bloomberg News.Because Wirecard failed to publish its annual report, the lenders have the right to call in their loans, but they haven’t so far. Keeping the company going will improve their chances of recovery.Unfortunately, as a financial technology company, Wirecard isn’t exactly flush with hard assets to sell. Some of its most valuable assets are customer relationships. The more transactions Wirecard processed, and the more customers it added to its financial platform, the more the business was worth in the eyes of investors.There’s a danger now that that unless it can quickly engineer a sale, Wirecard’s partners will desert the company because of the financial and reputational risks of maintaining a relationship. Mirabaud Securities’ Neil Campling, one of the few analysts to warn about its business, says there’s a chance credit card companies could decide to stop working with Wirecard after its compliance failures.The same is true of the company’s blue-chip clients. While Wirecard’s origins were in servicing payments for gambling and porn websites, it has nurtured relationships with more august consumer names such as Ikea and Swatch. There are other providers of similar digital payment services, so Wirecard is by no means irreplaceable. There’s a danger too that the customers of Wirecard Bank, the company’s German deposit-taking arm, withdraw some funds. Wirecard held about 1.7 billion euros of such deposits as of September 30th. The first 100,000 euros of customer cash are protected in Germany by deposit insurance, which might offer some protection. It’s questionable, though, whether regulators can continue to regard Wirecard as a responsible owner.Even if its lending banks show patience and customers remain loyal, the company will probably be hit by an avalanche of litigation. And its corporate culture will also be difficult to reform. It was aggressive in defending itself against accusations of fraudulent accounting. Yet it was the company that misled the market, not journalists or short sellers. (Braun has always denied wrongdoing.)Anyone who’s read the Financial Times’s extensive reporting on the company will see that the troubles run deep. KPMG’s special audit, published in April, couldn’t verify much of Wirecard’s historic revenue and profits. The question isn’t just whether Wirecard can survive, but whether it should.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Banks Snap Up $1.5 Trillion of ECB’s Cheap Loans
    Bloomberg

    Banks Snap Up $1.5 Trillion of ECB’s Cheap Loans

    (Bloomberg) -- The European Central Bank reached another trillion-euro milestone in its fight to bolster economies that are seeing years of growth wiped out in months by the coronavirus pandemic.An offer for its ultra-cheap, three-year loans was taken up by 742 banks for a total of 1.31 trillion euros ($1.5 trillion) on Thursday. That’s in line with predictions of 1.2 trillion to 1.5 trillion euros.The loans are intended to ensure banks keep providing credit to companies and households to bolster the economic recovery from the pandemic. They carry an interest rate below zero that means the ECB is paying lenders to lend.The fresh wave of stimulus comes at a time when fear about a potential second wave of Covid-19 infections is stalking investor sentiment.The money also provides funding that could be used to buy higher-yielding assets such as Italian debt, complementing other ECB programs that aim to curb unwarranted market volatility.Read more: Why ECB Crisis Plan Means More Free Money for Banks: QuickTakeThree-month Euribor’s premium over swaps -- a proxy for funding stress -- stayed 2.5 basis points higher at 10 basis points, following the outcome. This left it above the lowest level since March which was set on Wednesday.“This should be taken positively,” said Antoine Bouvet, rates strategist at ING Groep NV. “The main impact is that the additional liquidity reduces overall risk in the system.”Italian bonds pared gains after the 2-year yield briefly fell to the lowest level since March. Three-month Euribor futures contracts which are tied to the funding rate erased their advance.The ECB is fighting to help European economies deal with the biggest contraction in living memory. The institution’s 1.35 trillion euro pandemic purchase program has served as a backstop to euro-zone debt markets, helping boost the appeal of even the riskiest of government bonds. Italy saw the yield on its benchmark bond tumble more than 150 basis points from its highest point in March.Yet Citigroup Inc. estimates that the recent 600 billion-euro increase in asset purchases could fall 150 billion euros short of the bloc’s overall increase in debt supply.Last week alone, sovereigns raised 32 billion euros from the sale of syndicated bonds, pushing total issuance in Europe to 1 trillion euros so far this year. A German auction this week sold the largest amount of 10-year bonds since 2014.Why TLTROs?Isabel Schnabel, the ECB’s board member in charge of market operations, said last week that surveys point to a take-up of around 1.4 trillion euros for its targeted loans, known as TLTROs, which hold offers every three months.Schnabel said in a tweet after the results were published that the operation will add a net 548.5 billion euros in liquidity.“It is certainly a positive development,” said Jaime Costero, rates strategist at UBS Group AG. “This should continue to support, mainly, front-end peripheral rates.”Strong demand should also provide reassurance that the policy remains a viable weapon in the ECB’s arsenal, alongside its emergency bond-buying.The potential significance for wider risk appetite from the TLTRO number has grown in line with concern that the global rebound since March’s lows could have run too far ahead of fundamentals. Any sign that the recovery could face a setback is likely to stand out more starkly against that backdrop.“Just stay long BTPs and if there are set-backs then you use this to add to the position” said Jens Peter Sorensen, chief analyst at Danske Bank A/S, referring to Italian government bonds. “If you cannot buy Italy, then go for Spain.”(Updates with market reaction and comments starting in sixth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    Yield-Curve Control Could Complicate Fed’s Exit Strategy

    (Bloomberg Opinion) -- Federal Reserve Chair Jerome Powell has said that he and his colleagues are “not even thinking about thinking about raising rates.” That doesn’t mean we can’t still speculate about what the central bank’s exit from ultra-accommodative policy will look like, however many years into the future that may be.Effectively, by announcing a monthly floor on purchases of U.S. Treasuries and agency mortgage-backed securities last week, the Fed started what will surely be a long countdown to a second “taper tantrum.” The original episode happened in 2013, when yields lurched higher after Ben S. Bernanke surprised investors by suggesting that the central bank would soon scale back its bond-buying program. In general, the Fed has indicated that interest rates are its primary tool and asset purchases are a more “extraordinary” measure, even if they seem commonplace by now. That means before Powell would think about increasing rates, he’d look to steady the balance sheet.Such a move is probably “some years away,” Powell said during testimony to the Senate Banking Committee on Tuesday, though “that’s probably the way we’d start” to tighten policy. He explained what the process would look like:“It’s just something that has to be taken very carefully and very slowly and it’s not something we’re thinking about now. ... When the time comes, what we did from 2014 to 2017, we just froze the size of the balance sheet, and as the economy grows, the balance sheet shrinks as a percent of the economy. So that’s a very passive way, and that didn’t cause any reaction in the market. I think there have been market reactions when we actually try to shrink the size of the balance sheet.”Powell conveniently started his flashback in 2014, skipping over the market’s tantrum over the Fed just reducing the pace of its bond purchases. Later in his testimony, he again referred to 2014 through 2017 as “a very peaceful period.” Getting to that point wasn’t without fits and starts.It might be worse this time around — or, at least, weirder. The Fed is considering whether to undertake yield-curve control to reinforce its forward guidance and tame shorter-term borrowing costs. The implicit threat behind the policy is that the central bank will gobble up as many Treasuries as necessary to fix yields at or below a set level. Most economists have said they expect the Fed to roll out yield-curve control later this year, even though that doesn’t seem pressing as long as bond traders are behaving on their own.Figuring out how the Fed would ever manage to untangle itself from a mix of yield-curve control, asset purchases and near-zero interest rates is a challenge. “I suspect that part of the reason the Fed wants to discuss this some more is that they need to figure out how exactly to get out,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. “The Fed doesn’t want to enter a program it doesn’t have a good idea how to wind down.”Goldberg says he expects yield-curve control will happen later this year to prevent traders from pulling forward expectations for interest-rate increases when the economy rebounds from its lockdown lows. Meanwhile, the Fed will likely keep buying bonds through at least the end of 2021. “Anchoring the front end would help prevent any tantrum reaction of markets expecting that a paring of QE at some future point would lead to rate hikes right away,” he said.This combination of policies can become circular in a hurry, however. The only way to scale back would seem to hinge upon bond traders collectively not challenging the central bank on its yield caps.Currently, the median expectation among Fed officials is that interest rates will remain near zero through at least the end of 2022. If they wanted to hammer home that outlook, they could announce a cap on two- or three-year Treasury yields. The Fed could end up purchasing hundreds of billions of dollars of the maturities, or virtually none. The Bank of Japan precedent, Goldberg says, suggests traders would initially test the Fed’s resolve but eventually back down. Either way, it’s a tricky environment to formally scale back bond buying. The Fed has some flexibility. Citigroup Inc. strategists Jabaz Mathai and Jason Williams recently described how they see yield-curve control working:“The Fed would announce on the implementation date – let’s call it Sep 16, 2020 that it stands ready to buy any Treasury security that matures on Sep 16, 2023 or earlier at a yield of say, 25bp. As time passes, the Sep 16, 2023 terminal date would not change (unless explicitly extended); thus, the maturities of the securities the Fed is committed to buy would decline over time, and the program would automatically end on the specified terminal date. Moreover, any securities that the Fed bought under the program would mature by the terminal date, leaving no lasting effect on the Fed’s balance sheet. This ‘automatic exit’ is an attractive aspect of the approach.”It’s still hard to see how the Fed averts any market tantrum. If the terminal date doesn’t change from meeting to meeting, that itself is a new form of policy action, implying tapering and setting a date at which interest-rate increases are back on the table. How far in advance would officials deem it necessary to push back the end of yield-curve control? How accurate are their forecasts for the U.S. economy? All the while, the Fed would presumably still be buying longer-term Treasuries — would that also taper off near the stated terminal date?I’m not the only one with concerns. Dallas Fed President Robert Kaplan said on Monday that he would not rule out yield-curve control, but he’s skeptical and fears it could distort the pricing mechanism in the Treasury market. “I think it’d be wise to show some restraint and to assess the implications of what we’ve done so far before we make our next move,” he said.On Tuesday, in what seemed to be a nod to this viewpoint, Powell said of yield-curve control: “We’ve made absolutely no decision to go forward on it. As you’ve seen, some of my colleagues have given speeches lately raising questions about it. So it’s not a decision that we’ve made. The sense of it is if rates were to move up a lot for whatever reason and we wanted to keep them low to keep monetary policy accommodative, we might use it.”Given the potential headaches around entering and exiting the policy, the Fed should use discussions of curve control to jawbone traders for as long as possible. Three-year Treasuries already yield less than 0.25%, and in the past two months they’ve topped out at 0.31%. Perhaps the “dot plot” and broad bond buying are enough to tame the Treasury market. It would certainly be more straightforward to unwind, whenever central bankers start “thinking about thinking about” that.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Why Citigroup Inc's dividend is looking safe to me
    Stockopedia

    Why Citigroup Inc's dividend is looking safe to me

    There is great comfort to be found in regular, reliable dividend payouts – especially in times of economic uncertainty. But finding shares that can pay them is...

  • Asia Electronics Sector Booms, Bucking Global Economic Slump
    Bloomberg

    Asia Electronics Sector Booms, Bucking Global Economic Slump

    (Bloomberg) -- Global trade data in the Covid-19 era has been generally abysmal, but look a little closer and the electronics sector that fires Asia’s trade engines could be headed for a pretty good year.In South Korea, semiconductor exports rose in May and imports of equipment used in producing semiconductors surged 168%, trade ministry data show. Taiwan’s electronic-component exports, which include chips, grew 13.2% in May to $10.2 billion, even as total exports fell 2% from a year earlier.The electronics industry is holding up relatively well amid the pandemic as companies adopt new technologies -- including 5G equipment and automation tools -- that make it easier for employees to work remotely. A sustainable boost will depend on whether consumers return with similar vigor, and whether other factors such as U.S.-China tensions don’t interfere with digital demand and supply.“The tech industry seems to have decoupled from the overall economy somewhat, as the tech industry is still growing well” and has been “relatively immune to Covid-19,” Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co., said at a shareholder meeting June 9.Read More: Little-Known Data Show Signs of a Tech Bounce: Tim CulpanTSMC, the main chipmaker for Apple Inc. and Huawei Technologies Co., still plans to spend as much as $16 billion on capacity upgrades and technology this year, and expects revenue gains in the mid- to high-teens, Liu said. Covid-19 has helped drive some budding technologies related to remote work and education and social distancing, he added.TSMC shares have risen 25% since their lowest close for the year on March 19, less than the 30% gain in Taiwan’s benchmark Taiex stock index in that time. TSMC shares were down 2.2% as of 1:32 p.m. Monday, compared to a 0.98% drop in the Taiex.Amid generally awful export figures from the region, “the one bright spot is semiconductors,” said Trinh Nguyen, a senior economist at Natixis SA in Hong Kong. “A lot of this reflects the product cycle and also the global lockdown and suppression that favor the ‘digitalization’ of economic activities, driving demand for electronic goods like chips.”Budding TechnologiesFor economies like South Korea and Taiwan that rely on tech exports, “the upturn in demand for electronics has been a pillar of support amid the coronavirus pandemic,” said Lloyd Chan, an economist at Oxford Economics Ltd.“However, the improvement in the tech sector won’t be able to offset significant demand weakness in non-electronic exports,” he said, adding that even the surge in PC demand “could be a one-off,” attributable to the sudden shift to telecommuting during the pandemic.Still, it helps that some of Asia’s most tech-focused economies have had relative success in containing the virus: Taiwan has reported just seven virus deaths, South Korea flattened its curve fairly early and Singapore’s fatality rate is among the world’s lowest. That gives momentum to efforts to restart tech engines and get consumers used to new ways of doing business.“We’re seeing more countries pledging economic reforms, and there’s increased urgency for a stronger technology push to lead the economic recovery,” said Zhao Defa, an economist at Continuum Economics in Singapore. “Given that South Korea and Taiwan are the world’s main semiconductor producers, they will be beneficiaries.”Some of the boom is specific to the health crisis, amid a global scramble for medical equipment and demand for video-conferencing and other technologies as work and school shift more to people’s homes.China’s medical exports and shipments of high-tech electronics jumped in both April and May, for example, while Singapore’s pharmaceutical shipments surged 174% in April from a year earlier. Further gains may not be as pronounced.Consumer demand is still lagging, though. South Korean shipments of computer products jumped 83% in May, their eighth straight monthly gain, but sales of smartphones dropped 22% and consumer appliances fell 37%. Globally, smartphone shipments are expected to fall 11.9% this year -- their biggest annual drop ever, according to data from research firm IDC.While 5G, high-performance computing and artificial intelligence will all create demand for Taiwan’s exports, setbacks from Covid-19 and U.S.-China tech tensions could constrain that progress, Beatrice Tsai, director-general of the statistics department at Taiwan’s Ministry of Finance, said June 8.Still, analysts at Citigroup Inc. see a risk that U.S.-China tensions will weigh on chip demand. China’s buildup of chip inventories was intended partly to get ahead of a U.S. ban on Huawei set to take effect later this year.China’s export orders have taken a hit from lockdowns in the U.S. and key European markets, said Rajiv Biswas, APAC chief economist at IHS Markit. A second-half recovery in those economies, as well as Christmas orders, could drive a rebound in tech exports, he said.Governments have tried to stay focused on the long view, aiming to take advantage of the tech sector’s relative advantage in the pandemic by providing special support for electronics firms and new technologies. Singapore pledged S$500 million ($360 million) last month to help businesses in their digital transformations, including moving hawker center stalls to e-payments, and is spending another S$3.5 billion on information and communications technology to mitigate the virus outbreak.When the virus’s spread threatened Vietnam’s burgeoning tech industry, the government granted an exception to its otherwise strict lockdown measures: Samsung Electronics Co., which makes about half of its smartphones in factories near Hanoi and is one of Vietnam’s largest investors, was allowed to shuttle in more than 1,000 engineers from South Korea.“The recovery will be digital,” Anand Swaminathan, senior partner and head of McKinsey Digital in Asia, said in a June 9 interview. Asian governments are “all starting to figure out what their investment strategy is on digital.”(Updates market levels in sixth paragraph, adds analyst quote in eighth and ninth paragraphs.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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