Ted Butler: Silver ETF is great if it succeeds and just as great if it fails

Section:

By Carmel Crimmins and Alistair MacDonald
Reuters
Tuesday, June 28, 2005

http://go.Reuters.com/newsArticle.jhtml;jsessionid=WMUP0ZVNSPPCYCRBAEO
CFFA?type=topNews&storyID=8915379

LONDON -- Britain's Financial Services Authority said on Tuesday it
had fined the world's largest bank, Citigroup, 13.96 million pounds
($25.44 million) for a controversial multi-billion-euro bond trade
last year.

The FSA said Citigroup had failed to conduct its business with "due
skill, care and diligence" when it disrupted European government bond
markets on August 2 last year.

The fine is the second-largest ever levied by the FSA but is small in
comparison to the $17 billion net income generated by Citigroup last
year.

The ruling by Europe's most powerful financial industry regulator
also effectively draws a line under an episode which Citigroup admits
has damaged its reputation and affected its business in the region.

And Citigroup was not accused by the FSA of the more damaging charge
of market manipulation.

On August 2 Citigroup sold 12.9 billion euros ($15.6 billion) of cash
bonds in one minute and bought back 3.8 billion euros of the paper
within an hour on a day when the U.S. market was closed for a public
holiday.

The majority of the Citigroup trades were conducted via the MTS
electronic European government bond platform, which handles an
estimated 70 percent of the market for Eurozone government bonds.

Under trading on the MTS traders are obliged to respond when one
makes an offer. So when Citigroup flooded the market with paper other
banks had to react.

Market participants said that while Citigroup did not do anything
illegal or even technically wrong, it ignored obligations to which
the whole market had been subscribing.

"Given their size, Citi make over $5 billion in profits per quarter,
so you won't notice this fine on the bottom line. It's about
reputation and putting a price on that is harder to do," said Jon
Peace, an analyst at Fox-Pitt Kelton.

Many had thought the fine would be around 17 million pounds, said
Robert Turner, a financial markets litigation partner at
international law firm Simmons & Simmons.

Bill Mills, Citigroup's chairman and chief executive for Europe,
Middle East and Africa, denied that the company had got off lightly
given the fine's size in comparison with other FSA charges.

The FSA was "the big decision and we can draw a line under a very
significant component of the investigations now," he told Reuters,
describing the trade and its repercussions as being a "very important
event in the Citigroup's history."

The penalty is made up of the 9.96 million pounds of profit Citigroup
made from the trade and an additional penalty of 4 million pounds.

Citigroup executed a trading strategy "without having due regard to
the risks and likely consequences of its action for the MTS
platform," Hector Sants, the FSA's managing director for wholesale
business, said in a statement.

Sants said firms such as Citigroup, whose size and resources allow
them to trade in large volumes and take significant risks, should
take particular care with standards.

Milan-based MTS said it would not be able to comment or take
investigatory action against Citigroup until other probes have been
concluded.

The controversial trade, described by Citigroup's Chief Executive
Chuck Prince as "knuckle-headed" came at a time when Citibank's
reputation was under fire following its closure of its private
banking operation in Japan where manipulative lending practices and a
failure to screen out suspected money laundering was uncovered.

Since last year Citigroup has increased the ethical training it gives
staff and set up a hotline where employees can tell their bosses
where rules are being breached.

Earlier this month, Citigroup was cleared in a probe by Germany's
Eurex exchange over whether the August 2 trade had broken exchange
rules.

Last week Spain said it had shelved an investigation into the trade.
But probes are continuing in Belgium, Portugal and Italy.

Citigroup's Mills said that the trade had damaged the bank's business
in Europe, particularly in selling new issues of government debt,
where the bank has been left off many mandates.

The bank is set to reinstate the six traders who were behind the bond
sales. They had been placed on leave of absence.

Germany's financial regulator BaFin has already criticized the
country's state prosecutors for failing to pursue these traders.

European debt markets did not react to the Citigroup fine because
initial fears of a market clampdown had faded and a compliance-
related rebuke was widely expected.

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