Tuesday, October 5, 2004
Citigroup`s Asia woes worsen
South Korea launches probe against bank's operations
Song Jung / Seoul October 05, 2004
Citigroup's legal problems in Asia mounted as South Korea's financial regulator said it would investigate the bank's Korean operations following Japan's decision to shut its private banking unit.
The world's largest financial services provider suffered a serious blow to its business and reputation last month when it was ordered by Japan's Financial Services Agency (FSA) to close its private banking operations in that country for violating banking laws.
Days later the bank also was banned from participating in auctions of Japanese government bonds because of the FSA penalty.
The unexpectedly severe punishment followed what the FSA said was a series of "serious violations"including misleading customers and failing to prevent suspected money laundering.
"Regarding what happened in Citigroup in Tokyo, we' re also interested in its operations in Korea. We'll be looking into mainly its private banking business,"said an official at the Financial Supervisory Service (FSS).
He added that the FSS would begin the investigation within the year and probe foreign exchange deals at Citibank, a unit of Citigroup, possibly linked to money laundering and domestic fund outflows through the US bank.
Citigroup is facing several billion-dollar legal actions brought by investors in the US and Chuck Prince, chief executive, has made restoring the company's reputation a priority.
Citigroup apologised for executing a huge trade in European government bonds in August as the ¤11 billion trade disrupted the electronic trading system, angering European government officials concerned at the effect on liquidity of their bonds.
Its Japanese private banking business, which has been ordered to close completely by September 30 2005, generated net income of less than $89 million (£50 million) last year out of a group total of $17.9 billion. Citibank Japan was the industry leader in private banking services in Japan with about 10,000 clients. Its Tokyo Marunouchi branch and satellite offices in Osaka, Nagoya and Fukuoka will have their licences revoked. Citibank had earlier said it was unclear whether they would reopen in the future.
One complaint cited by the FSA was making loans to clients who were subsequently prosecuted for manipulating the price of a publicly traded stock with the borrowed money.
In addition, the bank handled transactions for a client about whom an overseas Citibank branch had filed repeated reports of "suspicious transactions".Analysts had then suggested that the move by the FSA might affect Citigroup's corporate business in Japan and its private banking operations in other countries.
It was unclear what effect the planned investigation in Korea would have on the integration between Citibank's Korean branch and KorAm Bank.
Citigroup bought KorAm for $2.6 billion in April to become the sixth largest bank in Korea with $57.42 billion in assets. The new bank - called Citibank Korea - will begin operations in November with more than 4,100 employees and 238 branches nationwide.
KorAm president Ha Yung-ku is expected to become the first president for the combined bank with chief financial officer Park Jin-hei being the chief operating officer.