Citibank denied advance word on euro intervention

Section:

U.S. Hedge Fund Supposedly Knew About Intervention

By Claus Tigges
Frankfurter Allgemeine
September 28, 2000

FRANKFURT, Sept. 27 -- The intention of the European
Central Bank to intervene in favor of the euro,
along with other leading central banks, was
apparently known several hours before the actual
price-supporting currency purchases were carried out
last Friday, according to market sources in
Frankfurt.

Supposedly, there was a leak in one of the
participating central banks not in the euro-zone. On
hearing about the impending intervention, Citibank,
one of the leading currency traders worldwide, began
buying up euros in large volumes for a U.S. hedge
fund company, according to the rumor.

The price of the euro had risen slightly against the
dollar to more than $0.86 on Friday morning.
According to sources at banks in Frankfurt, the
suspected purchases and subsequent sales of currency
by Citibank were ostensibly the reason that the euro
did not climb to $0.90 following the intervention,
which took place at 1 p.m. CET.

A possible connection between the hedge-fund
company, the bank, and the central bank has been
found in the person of former U.S. Finance Minister
Robert Rubin, currently co-chairman of Citigroup.

The Bundesbank, which had participated in the
support buying on behalf of the Japanese central
bank, as well as the ECB, refused to comment on the
rumors on Tuesday. Citibank's German subsidiary was
equally silent on the issue. In Frankfurt the euro
was traded on Wednesday at around $0.8851, a little
higher than on Tuesday.

The amount of the intervention is still unknown. A
total of euro 6 billion ($5.3 billion) was
purchased, according to estimates of currency
experts. Some currency traders think this figure is
too low, and are citing figures between euro 15
billion and euro 20 billion as likely. In any case,
it is clear that currency traders in the
participating central banks had stretched the
intervention over a period of time, in order to
react to the development of the exchange rate.

Although the ECB announced that it would put back
the liquidity the markets had lost through the
support purchases, it will, nevertheless, be
difficult to estimate the real extent of the
intervention from this sterilization, which will in
all likelihood be carried out through the weekly
open-market operations. The ECB will spread the
additional liquidity across several transactions, in
order that the sums will not be calculable.

In the meantime, market observers expect that the
first intervention was not the last. It could soon
be necessary to carry out further support buying if
the Danes vote against Denmark's participation in
European monetary union in Thursday's referendum.

This would be assessed as a mark of distrust in the
euro, according to currency experts. Following
comments by U.S. Finance Minister Larry Summers, it
is not clear if the Federal Reserve Bank would be
willing to participate in further support buying on
its own account.