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Fraser's first year as CEO of CITI
Citigroup Inc. Chief Executive Officer Jane Fraser was blunt about the need for a makeover at the company, telling investors it will take time and money before paying off. Bloomberg's Sonali Basak reports.
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Putting Responsible Finance to Work for Citi Microfinance
This paper develops an ethical framework for responsible finance and then applies it to Citigroup (Citi), a major financial actor in the microfinance sector, to see whether it meets with such obligations. The framework consists of two categories of responsibility. The first category is the special social responsibility of financial institutions; and the second is the fundamental principles of ethical behavior in financial services. From Citigroup's microfinance model, scope of business, and multiple roles in the market, the company seems to be fulfilling its responsibility in inclusive finance. However, judged in term of the principles of integrity, objectivity, fairness, professionalism, and diligence, it falls short of its ethical responsibility. In view of this shortcoming, Citigroup should recall its obligation to avoid conflicts of interest, to provide responsible advice, to protect clients from overindebtedness, and most importantly, to act with integrity.
Journal Article
What Makes a Stock Risky? Evidence from Sell-Side Analysts' Risk Ratings
We examine the determinants and the informativeness of financial analysts' risk ratings using a large sample of research reports issued by Salomon Smith Barney, now Citigroup, over the period 1997-2003. We find that the crosssectional variation in risk ratings is largely explained by variables commonly viewed as measures of risk, such as idiosyncratic risk, size, book-to-market, and leverage. In addition, earnings-based measures of risk, such as earnings quality and accounting losses, also contribute to explaining the cross-sectional variation in the risk ratings. Finally, we document that the risk ratings can be used to predict future return volatility after controlling for other predictors of future volatility. We conclude that analysts play an important role as providers of information about investment risk.
Journal Article
OF TRUTH, PRAGMATISM, AND SOUR GRAPES: THE SECOND CIRCUIT'S DECISION IN SEC V. CITIGROUP GLOBAL MARKETS
In his 2001 letter to Berkshire Hathaway shareholders Warren Buffett stated, \"[Y]ou only find out who is swimming naked when the tide goes out.\"1 In the fall of 2008, the tide went out when Lehman Brothers collapsed and credit markets froze. Left exposed were the shoddy—and sometimes fraudulent—practices of participants in the theretofore esoteric industry of structured finance. Since then, the Securities and Exchange Commission (SEC) has extracted billions of dollars in settlements from the industry. A frequent enforcement tool of the SEC has been the consent judgment, a hybrid settlement that contains injunctive elements. This Note examines the role of the SEC in relation to Article III courts, specifically in the context of consent judgments. Drawing on the rich history of equitable practice and the doctrine of the separation of powers, this Note argues that SEC v. Citigroup Global Markets was wrongly decided in that it excessively curtails the role of district courts in determining the propriety of equitable relief. The opinion not only contradicts longstanding precedent, but also goes too far in ceding a core function of the judiciary to the SEC. This Note shows that, as a result, the decision serves to undermine fundamental goals of the securities laws.
Journal Article
Political Bubbles
Behind every financial crisis lurks a \"political bubble\"--policy biases that foster market behaviors leading to financial instability. Rather than tilting against risky behavior, political bubbles--arising from a potent combination of beliefs, institutions, and interests--aid, abet, and amplify risk. Demonstrating how political bubbles helped create the real estate-generated financial bubble and the 2008 financial crisis, this book argues that similar government oversights in the aftermath of the crisis undermined Washington's response to the \"popped\" financial bubble, and shows how such patterns have occurred repeatedly throughout US history.
The authors show that just as financial bubbles are an unfortunate mix of mistaken beliefs, market imperfections, and greed, political bubbles are the product of rigid ideologies, unresponsive and ineffective government institutions, and special interests. Financial market innovations--including adjustable-rate mortgages, mortgage-backed securities, and credit default swaps--become subject to legislated leniency and regulatory failure, increasing hazardous practices. The authors shed important light on the politics that blinds regulators to the economic weaknesses that create the conditions for economic bubbles and recommend simple, focused rules that should help avoid such crises in the future.
The first full accounting of how politics produces financial ruptures,Political Bubblesoffers timely lessons that all sectors would do well to heed.
eBook
Balancing the Banks
The financial crisis that began in 2007 in the United States swept the world, producing substantial bank failures and forcing unprecedented state aid for the crippled global financial system. Bringing together three leading financial economists to provide an international perspective,Balancing the Banksdraws critical lessons from the causes of the crisis and proposes important regulatory reforms, including sound guidelines for the ways in which distressed banks might be dealt with in the future.
While some recent policy moves go in the right direction, others, the book argues, are not sufficient to prevent another crisis. The authors show the necessity of anadaptiveprudential regulatory system that can better address financial innovation. Stressing the numerous and complex challenges faced by politicians, finance professionals, and regulators, and calling for reinforced international coordination (for example, in the treatment of distressed banks), the authors put forth a number of principles to deal with issues regarding the economic incentives of financial institutions, the impact of economic shocks, and the role of political constraints.
Offering a global perspective,Balancing the Banksshould be read by anyone concerned with solving the current crisis and preventing another such calamity in the future.
eBook
Guaranteed to Fail
The financial collapse of Fannie Mae and Freddie Mac in 2008 led to one of the most sweeping government interventions in private financial markets in history. The bailout has already cost American taxpayers close to
eBook
The manipulation of LIBOR and related interest rates
Purpose
– The “London InterBank Offered Rate” (LIBOR) is one of the most important short-term interest rates with trillions of US dollar in financial products tied to it. Due to recent allegations of manipulation of the LIBOR, this paper aims to investigate the integrity of this rate.
Design/methodology/approach
– The paper analyzes the LIBOR and its rate fixing process using different screens to detect potential manipulative behavior on the macro and micro level. As main frameworks, an interest rate parity approach and the construction of a theoretical LIBOR using Credit Default Swap (CDSs) are applied. A simulation on the potential impact from one through four banks manipulating the LIBOR is performed as well.
Findings
– The results on the macro level show that the LIBOR deviates heavily from other short-term interest rates from mid-2007 onwards, reaching its peak in September 2008 with the collapse of Lehman Brothers. On the micro level, the individual submissions of the panel banks are investigated, finding inconsistencies for Barclays and HSBC. Furthermore, a simulation on the influence from potential manipulation under the current calculation method reveals substantial effects on the LIBOR fixing. Even one bank trying to manipulate the fixing has a strong influence on the rate setting.
Originality/value
– This paper contributes to the academic landscape in that it investigates the LIBOR rate setting process and if irregular behavior can be detected, given the screens used. Due to the findings of conspicuous behavior in the fixing during certain periods, the integrity of the rate setting process is more than questionable.
Journal Article
Securities Regulation — Consent Decrees — Second Circuit Clarifies that a Court's Review of an SEC Settlement Should Focus on Procedural Propriety. — SEC v. Citigroup Global Markets, Inc., 752 F.3d 285 (2d Cir. 2014)
In SEC v Citigroup Global Markets Inc, the Second Circuit clarified its standard of review for consent decrees, emphasizing that district courts should focus on ensuring that the decree is 'procedurally proper'. The court rightly vacated the lower court's rejection of the settlement at issue. By reformulating the standard of review as a highly deferential procedural test, however, the Second Circuit overcorrected the district court's exacting substantive review. An ideal standard would split the difference between the two approaches and review the substantive merits of the decree with a deferential posture. Judge Pooler clarified that the proper standard for reviewing a proposed consent decree requires the district court to determine whether the settlement is 'fair and reasonable', and, if the decree includes injunctive relief, that the 'public interest would not be disserved' by the agreement. After establishing the proper test for review, Judge Pooler determined that the district court abused its discretion.
Journal Article