17 Jul 2009, David Benyon, Operational Risk & Regulation
WASHINGTON, DC - Citigroup is reportedly close to a secret deal with the US Federal Deposit Insurance Corporation (FDIC) to fix issues with its board, governance, asset quality, expenses management, as the quality of well as capital and liquidity disclosures.
The Financial Times reports that the deal has been discussed over recent weeks between regulators and the bank's board, led by chief executive officer Vikram Pandit, with the FDIC frustrated at the bank's losses, the speed with which Citi has disposed of 'toxic assets', and a shortage of commercial banking experience at the top.
The US government is taking a 34% stake in Citi, while Treasury stress-testing exercises in May found the bank required $5.5 billion more capital to satisfy its stress requirements.
The FDIC is seeking more detailed disclosures from Citi, which is expected to announce second-quarter losses this week, before deciding whether to label it one of the "problem banks".
Signing an "informal action" with Citi strengthens the FDIC's hand in that process, would be less serious than a formal enforcement process, and is designed to avoid further damaging the bank or provoking investor fears.
The changes to governance that the FDIC allegedly seeks are not specific to executives and, the FT reports, were not behind the bank's decision last week to demote its chief financial officer, Ned Kelly.