James Turk: The Fed''s track record isn''t pretty

Section:

By The Associated Press
Friday, March 18, 2005

http://biz.yahoo.com/ap/050318/fed_citigroup_2.html

WASHINGTON -- The Federal Reserve has barred Citigroup Inc., the
largest U.S. financial institution, from making major new
acquisitions until it corrects regulatory problems that have gotten
it into trouble with authorities in several countries.

The unusual move by the central bank came less than a month after
Citigroup, stung by a series of scandals in the United States and
abroad, put into effect a new ethics policy and a drive to
strengthen internal controls and expand training throughout the
globe-spanning company.

The directive issued by the Fed's board of governors Wednesday was
tucked into an order approving Citigroup's acquisition of First
American Bank of Bryan, Texas, so that it initially escaped public
notice. First American has assets of $3.5 billion and more than 100
branches. Terms of that deal have not been disclosed.

Referring to Citigroup's plan to bolster ethics and internal
controls, the Fed said in the order it "expects that management at
all levels will devote the necessary attention to implementing its
plan fully and effectively and won't undertake significant expansion
during the implementation period."

The Fed governors believe it is important "that management's
attention not be diverted from these efforts by the demand that
mergers and acquisitions place on management resources," it said.

Shannon Bell, a Citigroup spokeswoman, said in a statement that
implementing the plan "is our top priority and it is the right way
for Citigroup to engage in sustained long-term growth."

New York-based Citigroup was forced to close its private banking
operation in Japan last year for ethical lapses. In Europe, the
company is under investigation for bond trading that roiled European
markets.

Before that, Citigroup became caught up in a number of domestic
scandals. In April 2003 it was part of a $1.4 billion industrywide
settlement with federal and state regulators over analysts issuing
biased ratings on stocks to lure investment-banking business. Last
year, Citigroup paid $2.58 billion to settle a class-action lawsuit
brought by investors who bought WorldCom Inc. securities before the
telecom titan's 2002 collapse. Citigroup also has been named in
cases stemming from the Enron Corp. bankruptcy.

Citigroup also has been sued for its role in financing Parmalat
Finanziaria SpA of Italy, which collapsed last year under $18
billion debt. Citigroup has denied any wrongdoing and has filed a
countersuit, claiming the bank lost $670 million.

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