Dow Jones Business News
Weekly Financial Update -- Citigroup Concedes Lapses in Transfer of Russian Funds
12/01/2000
Dow Jones Business News
(Copyright (c) 2000, Dow Jones & Company, Inc.)- Citigroup Inc. is acknowledging lapses in its U.S. branch-banking operations that allowed about $725 million in questionable Russian funds to flow through more than 100 accounts from 1991 to this year, much of which went to offshore banking havens.
The lapses in compliance and monitoring in the company's Citibanking unit have come to light at a time of heightened sensitivity toward Russian fund transfers through U.S. banks because of the money- laundering investigation into about $7 billion in Russian funds transferred through accounts at Bank of New York Co.
Citigroup's (C) acknowledgment of the lapses was given in a letter sent Tuesday to the General Accounting Office, the investigative arm of Congress, which for the past seven months has been investigating the ease with which foreign companies can establish corporate entities and bank accounts in the U.S. The GAO subpoenaed information on the Citibank accounts at the request of the Senate Governmental Affairs Committee's Permanent Subcommittee on Investigations.
In a new report the GAO said the transfers through Citibank and another San Francisco bank "raise concerns that the U.S. banking system may have been used to launder money." It added, "We have referred the information developed to appropriate law-enforcement and regulatory agencies."
The Russian lapses also are an embarrassment for Citigroup, the nation's largest financial-services firm, as it tries to repair Citibank's image after criticism over Citibank's past willingness to serve as banker to controversial figures such as Raul Salinas, brother of former Mexican President Carlos Salinas, as well as the sons of former Nigerian dictator Gen. Sani Abacha.
- As Chase Manhattan Corp. moves to complete its merger pact with J.P. Morgan & Co., the banking company has quietly raised the number of people it expects to lay off to 5,000 from 3,000, The Wall Street Journal reported.
People familiar with the matter say Chase officials have found more areas of overlap than originally anticipated in what will be renamed J.P. Morgan Chase & Co., and will thus cut more jobs. These people also say Chase (CMB) may close on the merger before the end of the year, earlier than the originally scheduled close sometime during the first quarter of 2001.
Chase has already told hundreds of employees that they have lost their jobs, and more announcements are expected as early as today. The bank intends to complete the layoffs before the anticipated year-end close. That would suggest that in each week ahead of the holidays, hundreds, maybe even thousands, of employees will be handed pink slips.
The 5,000 anticipated job cuts, though higher than expected, still amounts to roughly 5.2% of the total 95,000 employees in Chase and is far fewer than the 10,000 cuts that many on Wall Street had anticipated. The cuts also significantly trail the 13,000 cuts Chase announced after its 1995 merger pact with Chemical Bank.
The regulatory arm of the National Association of Securities Dealers, accused noted short-seller Manuel Asensio and his trading firm, Asensio & Co., of a series of violations involving several hundred bearish market bets, among other things. Without admitting or denying the allegations, Mr. Asensio agreed to pay a $75,000 fine, to retake a basic brokerage examination and to remove some advertisements from his Web site.
The agreement caps the NASD's two-year inquiry into the activities of one of Wall Street's most controversial players. Mr. Asensio 's flamboyant methods -- he often would blast his targets on his Web site and sometimes referred to companies he shorted as "frauds" -- were the subject of a Wall Street Journal report in June.
Mr. Asensio asserted that NASD Regulation's inquiry and findings are motivated by some of his efforts to expose fraud and abuse in the stock market -- an assertion that regulators deny.
Mr. Asensio has earned as much as $6 million a year from short selling -- borrowing shares of a company from a broker and selling them, hoping to buy back the shares later at a lower price, return the shares to the lender and pocket the difference. During much of the bull market, he thrived while many other short sellers lost money and went out of business. Instead of targeting pricey Internet and technology stocks, however, Mr. Asensio instead has focused on companies that he believes are misrepresenting their business to investors.
- State Farm Mutual Automobile Insurance Co., the nation's largest car insurer, said it will offer discounts to drivers of vehicles that appear to best protect passengers during accidents.
Using its claim payments for driver and passenger injuries by make and model of vehicle, the company said it will grant discounts of as much as 40% on premiums.
The discount will replace the company's existing "passive restraint" discount, which applies to cars with air bags or automatic safety belts, for 1994 and newer vehicles. Because all cars now have air bags, State Farm decided to base the discount on which makes and models generated the fewest injury claims from accidents.
The new plan will cut rates for drivers of some larger models, including sport utility vehicles and pickup trucks, because they generate the fewest injury claims. Big autos, such as some Acuras, BMW's, Mercedes-Benzes and Jaguars, also fall under that category. Vehicles with air bags that offer the least protection to occupants will receive 20% discounts. These vehicles tend to be smaller, like the Ford Contour, Chevrolet Cavalier and many popular Japanese models.
J. Robert Hunter, director of insurance for the Consumer Federation of America, called the new pricing plan unfair to most drivers and said it will penalize those who can't afford large vehicles.
- A group of investment firms agreed to invest $700 million to acquire a majority stake in online brokerage Datek Online Holdings Corp. and Island ECN Inc.
The investment group is led by Bain Capital and includes TA Associates and Silver Lake Partners. Island, an electronic trading network that is 85% owned by Datek, will be spun off as a separate, independent company.
Closely held Datek will acquire all voting shares held by an original group of shareholders, including Jeffrey A. Citron, the company's co-founder and former chief executive. Current management and the investment group now will own all the voting control of the online brokerage operator.
Once the transaction is complete, the investor group and management will have combined ownership of more than 90%, with Datek's ownership reduced to less than 10%.
Datek Online scrapped plans for an IPO last year amid publicity over investigations by the Securities and Exchange Commission and the U.S. attorney in Manhattan. Authorities were examining trading and lending practices at the old Datek Securities unit, Datek officials say.
Some analysts have said these problems have hobbled the company with investors, and the effort to buy out the original shareholders is interpreted as a move to distance the firm from its troubled past.
- UBS AG reported that net profit rose to 2.08 billion Swiss francs ($1.17 billion, 1.39 billion euros) in the third quarter, up 69% from 1.23 billion francs in the year-earlier period.
Pretax profit was 2.7 billion francs, up from 1.61 billion francs in the year-earlier period. Earnings per share were 5.15 francs for the quarter, rising from 3.07 francs a year earlier.
The company said operating income totaled 8.55 billion francs in the third quarter, up 31% from a year earlier, but down 7% from the second quarter of 2000, following an exceptionally strong first half. The drop from the previous quarter resulted from an 18% decline in net interest income and a 12% drop in trading income. Both sources of income fell more than expected. Trading income was 2.37 billion francs, up from 2.10 billion francs a year earlier. Interest rate income was 1.97 billion francs, up from 1.14 billion francs a year ago.
UBS's investment-banking division, UBS Warburg, posted pretax profit of 1.14 billion francs -- more than double the year-earlier level, although down from from 1.21 billion francs in the second quarter of 2000.
The Swiss banking group said it expects the fourth quarter to be quiet and that integration and restructuring costs from the purchase of U.S. brokerage PaineWebber Group will have a one-time impact on earnings. The company didn't quantify the expected impact. But analysts expect that it will have to book an initial part of the planned $875 million retention package against fourth-quarter earnings.
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This newsletter was assembled from stories prepared by Dow Jones Business News that appear on WSJ.com and Dow Jones Interactive, http://djinteractive.com
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