Receiving Wide Coverage ...
Fallout from Citi's Mexican Subsidiary Fraud: The alleged fraud at Citigroup's Mexican subsidiary, which resulted in a $400 million loss, cost 11 more employees their jobs on Wednesday. A Wall Street Journal investigation into what went wrong claims that Banamex, Citi's Mexican unit, "showered loans" on the troubled oil company Oceanografia despite warning signs of fraud that caused other major banks to pull back their lending to the company. Among the red flags were invoices that "looked like they had been done on Microsoft Word," an anonymous source tells the paper. The Journal also details how one Banamex banker put in place looser loan terms for Oceanografia, and then left Banamex to consult for the oil company. The Financial Times reports that the widening fraud scandal along with Citi's recent stress-test failure raises the heat on Citi Chief Financial Officer John Gerspach. The paper quotes one top-10 Citi shareholder saying that Gerspach ought to feel "[p]ressure to do a better job." The employees fired Wednesday include four managing directors and two business-unit heads, but so far no top-level executives; Manuel Medina-Mora, who oversees Citi's Mexican operations, and Banamex CEO Javier Arrigunaga have managed to avoid the ax, FT reports in a separate article on the fraud investigation. But with ongoing investigations into the fraud by the Securities and Exchange Commission, the Department of Justice, the Federal Bureau of Investigation and others, more heads could roll. The Journal also published Citi CEO Michael Corbat's memo to employees about the firings.
Cautious Japan: Japan's economy is growing at the fastest rate in three years, but the country's banks aren't sharing in the good times. Japan's three biggest banks Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group said they expect profits to drop this year despite the country's "Abenomics"-led recovery. Mizuho expects to see the largest decline of the three banks, a 20% drop, due to slow loan growth and yields. The pessimistic forecasts come the same day as Japan released its first-quarter economic data, which showed strong growth backed by consumer and corporate spending. Wall Street Journal, Financial Times, Bloomberg, Reuters
Wall Street Journal
The European Central Bank is prepared to ease its monetary policy if needed to prevent long-term low inflation, the paper says. ECB Vice President Vitor Constâncio said Thursday the bank will "act swiftly" to boost Euro-area inflation rates, which sit at 0.7%, well below the central bank's 2% target. Meanwhile, Europe's growth was worse than expected last quarter, which could add to the pressure on the ECB to help stimulate growth.
Barclays has "signaled its retreat" from global investment banking, once a key business for the bank, in response to tighter regulations in the U.K., the FT reports. Barclays is slashing 7,000 investment banking jobs and plans to move about half the unit's assets to a "bad bank." HSBC shareholders have successfully pressured the bank to reduce Chairman Douglas Flint's bonus cap to £1 million, less than half of what the bank projected in February. A British banking trade group is warning against the Bank of England's proposal for bonus clawbacks. The British Bankers' Association claims the proposal, which could force bankers to pay back bonuses as much as 11 years after they are awarded, would be impossible to enforce.