Citigroup memorandum details bond profit strategy

An internal Citigroup memorandum detailed how the US financial services company could "very profitably" manipulate the eurozone government bond market two weeks before it made several controversial trades, Britain's Financial Times newspaper said on Tuesday. The Financial Times said it had obtained a document dated July 20 that said Citigroup wanted to shake up the eurozone market, where transparency and competition have shrunk trading margins.
The newspaper quoted the memo as saying Citigroup wanted to "turn the European Government bond market into one that more closely resembles" the less transparent US Treasury bond market.
"Over time, this may help to kill off some of the smaller dealers," the FT quoted the memo as saying.
The Financial Times quoted a Citigroup spokesman as saying the memo was filled with "inappropriate" statements.
"As this is the subject of regulatory enquiry, we are unable to comment other than to say this memo is filled with inappropriate and unrealistic statements," the spokesman is quoted as saying. "It was not seen by, nor does it represent the views of, the supervisors who approved the trade, nor of the firm."
Citigroup spokeswoman Christina Pretto in New York declined further comment.
Citigroup is currently facing a criminal investigation in Germany over trades last August in which Citigroup traders are alleged to have manipulated the price of futures contracts on the German-based exchange Eurex.
German prosecutors allege that Citigroup sold 12.4 billion euros ($16 billion) of cash bonds and bought back 3.77 billion euros of the paper half an hour later, Reuters reported last week. The deal was said to have earned the bank a $17.5 million profit, according to the German financial watchdog BaFin.
The Financial Times said the memo was apparently written by a member of Citigroup's European government bond trading desk in London and was addressed to another member of the same team. The memo, titled "Challenging the dominance of Eurex futures," outlined a plan to take advantage of liquidity differentials between the German government bond futures and cash bonds traded on the EuroMTS electronic system, it said.