|Day's range||0.9500 - 0.9500|
Trading revenues are likely to have supported Citigroup's (C) Q2 earnings amid lower interest rates and the coronavirus outbreak-led uncertainties.
(Bloomberg Opinion) -- The Federal Reserve’s towering $7 trillion balance sheet looks small in comparison to the U.S. defined-benefit pension industry. With more than $12 trillion of retirement assets across corporate America and state and local governments, these liability-driven investors have enough firepower to move financial markets if they so choose.Their next potential target just might be the world’s biggest bond market.By now, it’s no secret that long-term U.S. Treasury yields are pinned near record lows. Before the coronavirus crisis, 10-year yields never fell below 1.32%, while the 30-year bond bottomed out last year around 1.9%. For almost four months, the 10-year note has traded between 0.54% and 0.95%, while 30-year Treasuries haven’t come close to climbing back to their previous low. All the while, inflation expectations are creeping higher, leaving real inflation-adjusted rates about as negative as they have ever been.For defined-benefit pension managers who are expected to deliver annual returns in the high single digits, this won’t cut it. Bank of America Corp. strategists Ralph Axel and Olivia Lima wrote recently that pension funds and other liability-focused investors such as insurance companies probably won’t buy into the Treasury market until yields rise by “at least” 50 basis points, if not 75 to 100 basis points. In other words, the 10-year rate would have to double and the 30-year would have to breach 2% again.Their thesis stems from a correlation analysis of moves in 10-year yields and the change in Treasury holdings reported in the Fed’s quarterly flow of funds data. When adjusted for the sharp increase in bond prices in the first three months of 2020, Axel and Lima found that both private defined-benefit pension funds and the general accounts of insurance companies reduced their Treasury holdings in the first quarter.Judging by the sharp decline in Treasury Strips — an acronym for Separate Trading of Registered Interest and Principal of Securities — they probably steered clear in the past three months as well. The amount of the ultra-long duration debt outstanding has fallen for four consecutive months, a first since 2012, around the same time real yields hit record lows.Now, even if pensions weren’t buyers of Treasuries in recent months, benchmark yields remained suppressed for the entire second quarter. Credit the Fed’s bond-buying efforts for that: At one point in March, the Fed was buying $75 billion of Treasuries each day. It has since committed to purchasing about $80 billion a month, which, while still a large sum, is nonetheless a pullback and comes as the Treasury Department is widely expected to continue ramping up the size of its auctions to finance the government’s fiscal relief measures.Put together, it would suggest the potential for some fireworks at the long end of the yield curve. Here’s how Bank of America concludes 10-year yields will be back at 1% by the end of the year:The question is who will step up to buy in the second half when we expect coupon supply to be significantly higher than Fed purchases. This leaves a gap in Treasury supply vs. Fed demand that will need to be absorbed by other investors and increases the potential for higher long-end rates, i.e., a bear steepening of the rates curve, unless demand picks up for long duration Treasuries, or the macro outlook deteriorates. Because pension and insurance companies are the main buyers in the long end, this leads to the question of whether LDI demand will be strong enough to keep yields stable as coupon bond supply ramps up for the next several months.The forecast is all the more striking given Bank of America’s history in analyzing defined-benefit pensions. In July 2016, when Treasury yields set record lows, I interviewed Shyam Rajan, then the bank’s head of U.S. rates strategy and now its head of U.S. Treasury trading. With the benchmark 10-year yield at about 1.4%, he reckoned retirement funds might throw in the towel. “As a pension fund, you’ve got to be scared that rates could actually go lower,” he said at the time.Obviously, rates eventually fell below that level but not before gradually climbing through late 2018, when the 10-year yield topped 3% for the first time in seven years. With yields much higher, managers could simply aim to buy enough long-dated bonds to align principal and interest payments with payouts to retirees in a process known as immunization. Now, the funds are known more for risky gambits in alternative strategies — and for being chronically underfunded.As Bank of America’s strategists put it, purchasing Treasuries now only serves to “lock in such large funding gaps and also lock in low rates of return on the bonds.” The latest auction of 10-year notes this week offered a yield of 0.653%, the lowest on record, while a sale of 30-year bonds priced to yield just 1.33%. That’s not going to move the needle for state pension funds that widely assume an annual return of 7% to 8%.Yet even with almost $1 trillion in Treasuries owned among insurance companies and defined-benefit pensions, it’s unclear how much they can steer long-term rates. Thursday’s $19 billion long-bond auction was nothing short of spectacular, with nonprimary dealer buyers taking the second-largest share ever. Some strategists speculated that foreign investors swooped in with hedging costs low relative to recent history.“It seems that investors used this auction as a liquidity opportunity to put on flatteners,” noted Thomas Simons at Jefferies LLC. “There’s no reason to believe the move will subside any time soon as there is clearly a lot of momentum behind it.” For those wagering on a steeper yield curve, this recent jolt just creates a better entry point.For some sense of pensions’ influence, in September 2018, Citigroup Inc. estimated the funds alone reduced the spread between five- and 30-year Treasuries by as much as 32 basis points over 12 months. Even if they could exert similar influence in the opposite direction this time, in a market that has since grown by $4 trillion, that would still fall far short of Bank of America’s threshold.The biggest wild card, as usual, is the Fed itself. Just how far would policy makers allow the U.S. yield curve to steepen before intervening with something like Operation Twist? Judging by their rebuke of negative-rate policy, it seems as if they realize the strains that near-zero yields place on banks, insurers and pensions. So it would stand to reason that they’d be fine with the yield curve from five to 30 years at least steepening by an additional 40 to 50 basis points to align with its 10-year average of roughly 150 basis points and put the long bond right around its 2% inflation target. On the other hand, all it would take is a worsening economic outlook or a sharp drop in the price of risk assets for the central bank to swoop in with another dose of easing. It’s because of the central bank’s heavy hand in the $19.2 trillion Treasury market that I’ve argued typical supply-demand dynamics don’t carry much weight. While I still believe that’s the case, the lack of enthusiastic buying from anyone but the Fed might be enough to tip the scales. As in 2016, pensions have ample reason to fear that rates will move even lower. But at these levels, they’re left with virtually no choice but to revolt and hope for better days ahead.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.
U.S. stocks are set to open lower Friday, amid continuing concerns about the growth of coronavirus cases and its impact on the prospects for economic recovery ahead of the upcoming earnings season. At 7:10 AM ET (1110 GMT), S&P 500 Futures traded 5 points, or 0.2%, lower, Nasdaq Futures down 5 points, or 0.1%. The Dow Futures contract fell 55 points, or 0.2%.
While some investors are already well versed in financial metrics (hat tip), this article is for those who would like...
Citi, acting through Citibank N.A., has been appointed by Amryt Pharma Plc ("Amryt") – a global, commercial-stage biopharmaceutical company dedicated to commercializing and developing novel therapeutics to treat patients suffering from serious and life-threatening rare diseases – to act as depositary bank for its American Depositary Receipt ("ADR") programme.
(Bloomberg) -- SAP SE, Europe’s largest technology company, reported better-than-expected preliminary results for second-quarter revenue, buoyed by a resumption in software deals in Asia.Sales climbed 2% to 6.74 billion euros ($7.66 billion) in the quarter that ended June 30, the Walldorf, Germany-based company said Wednesday in a statement. Analysts, on average, estimated 6.61 billion euros, according to data compiled by Bloomberg.While software license revenues were below normal levels, they recovered more than expected in the most recent period, the company said. SAP said in April that deal activity had effectively ground to a halt because of the Covid-19 pandemic that forced people to remain in their homes to prevent the spread of the virus. The company saw renewed demand in the Asia-Pacific region, where some major economies have started to reopen.The company’s cloud revenue climbed 21% to about 2 billion euros. SAP reiterated its annual forecast of as much as 28.5 billion euros in adjusted revenue and operating profit of 8.1 billion euros to 8.7 billion euros.The results “put a bottom” on first-quarter trends and should reassure investors that the company should be able to hit its guidance for the year, Citigroup Inc. analysts said in a note. Analysts at Jefferies said that SAP’s decision to keep 2020 guidance unchanged implies the company sees “a gradually improving demand environment throughout the year.”Shares rose 5.5% to 137.06 euros at 9:07 a.m. in Frankfurt on Thursday. The stock has gained 14% this year.“Business activity gradually improved over the course of the second quarter,” the company said in the statement. “Current cloud backlog remained strong with continued high demand for digital supply chain, e-commerce, cloud platform and Qualtrics solutions.”The better-than-expected results could indicate that SAP’s corporate customers, which had halted large information technology projects during the pandemic, may be feeling more confident as Covid-19 restrictions loosen in many parts of the world.Tight IT budgets will likely loosen up in early 2021 and demand could return for companies like SAP driven by an aim to improve productivity, Bloomberg Intelligence analyst Anurag Rana said in a note this week. Cloud application providers in particular should see demand “climb sharply” next year after the lockdowns persuade more companies to make their operations digital.“Demand may return for these products in early 2021, as corporations aim to improve the overall productivity of their finance and other back-office functions. The coronavirus pandemic has shown the importance of cloud-based software products, which we believe will permeate into back-office applications.”\--Anurag Rana, Bloomberg IntelligenceThe economic slowdown caused by the pandemic has been a challenge for Christian Klein, SAP’s chief executive officer who is now solo after the departure of his former co-CEO, Jennifer Morgan. The German software maker adopted virtual sales and implementation processes and slowed hiring and other expenses to boost profitability.Still, the moves helped boost the company’s operating margin by 6.5 percentage points from a year earlier to 19% in the quarter.(Updates with shares, analyst comment in 5th paragraph, background 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 (C) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.
The U.S. Treasury Department released Monday a highly anticipated trove of data identifying every company that has received a loan of more than $150,000 from the Paycheck Protection Program (PPP) -- a list that includes some of the hottest names in the tech startup world, including Bolt Mobility, Getaround, Luminar, Stackin, TuSimple and Velodyne. The list also provides the number of jobs that each company said it plans to retain as a result of the funds. The $2 trillion CARES Act passed by Congress and signed by President Trump, included PPP loans designed to provide a direct incentive for small businesses to keep their workers on the payroll.
Citigroup (NYSE: C) is woefully undervalued and its stock price is set to at least double before long, according to a senior analyst at prominent financial services firm Oppenheimer. This was done in the realistic anticipation that borrower defaults will rise significantly amid the extended fallout from the economic disruption wrought by the coronavirus pandemic. Additionally, the Fed ordered banks to suspend share repurchases for Q3, although that mandate will have less of an impact because many top institutions had already decided to halt stock buybacks.
(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” for 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.
(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.
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.
(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.
(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.
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.
Citigroup (C) to expand commercial banking operations in the Nordics to grab opportunities and cater to clients' needs amid the coronavirus pandemic.
(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 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.
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.