Costs cut, Citi now may consider sales

The cost cutting at New York-based Citigroup Inc. last week certainly was painful but hardly unexpected.

The cost cutting at New York-based Citigroup Inc. last week certainly was painful but hardly unexpected. The big question now is what comes next, besides more cost cutting, after the elimination of 17,000 jobs and a $1.4 billion charge before taxes. Consequently, Citi watchers are keeping a close eye on Gary Crittenden, the recently hired chief financial officer, who is conducting a review of the bank’s portfolio of businesses — perhaps resulting in the sale of some of the banking giant’s far-flung assets.
Another telling sign of things to come was the bank’s reported $800 million acquisition of New York-based Old Lane LP, a year-old hedge fund founded by Vikram Pandit, who left New York-based Morgan Stanley after being passed over for the top job at the firm.
Only two years ago, Citigroup chief executive Charles Prince dismissed the trend of big banks buying hedge funds as “the flavor of the month.” But the fabulous fees and ultrawealthy clients proved too tempting to resist, and the more interest Citi shows in the hot new hedge fund business, the greater the odds some old-school standbys will be put on the block, industry observers say.

Moving on
Citigroup also came to terms last week with Todd Thomson, who was fired in January as head of the bank’s wealth management division. Mr. Thomson said he was let go without cause, but Mr. Prince was known to be upset with Mr. Thomson’s reportedly lavish spending habits, including corporate sponsorship of events involving CNBC superstar Maria Bartiromo, who took trips to Asia on Citi corporate planes and also was seen with Mr. Thomson at expensive Manhattan restaurants.
Details of the severance agreement were not made public, but Reuters reported that Mr. Thomson will not receive a severance payment and faced restrictions on poaching staff members from his former employer. Mr. Thomson apparently will turn his attention to an investment advisory firm he runs in Portsmouth, N.H.

Book beat
Index guru John Bogle’s “The Little Book of Common Sense Investing” (John Wiley & Sons Inc., 2007) is the latest book in the publisher’s “Little Book Big Profit” series, and it focuses on — you guessed it — index investing.
Mr. Bogle, founder and former chief executive of The Vanguard Group Inc. in Malvern, Pa., once again touts the wisdom of buying no-load and low-cost index funds, diversification and minimal trading. Fine, as far it goes, but critics reviewing the book — including fellow investment guru Burton Malkiel — wrote that Mr. Bogle gives much too short shrift to exchange traded funds and international investment opportunities.
On the opposite end of the investing spectrum, Richard Bookstaber, who has worked at New York-based Morgan Stanley and Salomon Brothers, explores such Wall Street financial engineering techniques as hedging, quantitative computer models and derivatives trading in his new book, “A Demon of Our Own Design” (Wiley, 2007). Ominously, he concludes that such strategies are increasing risk, turmoil and volatility in financial markets and that things will get worse before they get better.

The other SARs
It was bound to happen, and last week, it finally did. The Securities and Exchange Commission brought its first case against a brokerage firm for failing to report suspicious transactions as mandated by the USA Patriot Act.
Winter Park, Fla.-based Park Financial Group Inc. artificially inflated the stock price of Spear & Jackson Inc., a securities firm based in the British Virgin Islands, the SEC charged, and executed numerous trades in Spear’s stock without filing suspicious-activity reports, or SARs, with federal authorities, despite obvious red flags involving foreign-based accounts.
“The commission’s examination program has for several years highlighted the importance of anti-money-laundering procedures,” SEC enforcement director Linda Thomsen said in a statement. “A broker-dealer should not be surprised that its failure to file required SARs would lead to an enforcement action.”