Citigroup Global Markets looks to be re-creating a proprietary trading operation mirroring the legendary arbitrage unit disbanded by Salomon Brothers in the late 1990s, as part of a move to pump up profits. Shiv Chatterjee, managing director and head of mortgage-backed trading in New York, has transferred to a newly created proprietary role in which his responsibilities include trading mortgage derivatives, according to an official. Chatterjee declined comment. The firm is also looking to build up relative value arbitrage prop trading, the official added. Tom Maheras, global head of fixed income in New York, who is understood to be leading the effort, did not return calls.
Chatterjee is sitting within the firm's treasury group, but it could not be determined whether other traders would work out of this department or be based in fixed income.
Salomon Brothers was the undisputed leader in proprietary trading during the 1980s and much of the 1990s and its fixed income arbitrage group made huge profits, explained one pro. The operation, which had produced many of the best known quantitative traders in the industry including Long-Term Capital Management founder John Meriwether, was wound down in 1998. At its peak the unit boasted a balance sheet of around USD100 billion, according to Citigroup statements.
Sandy Weill, ceo, closed the prop unit when he took control of Salomon, because of his intense dislike of earnings volatility, explained one former official. Last November, the Wall Street Journal reported Charles Prince, who replaced Weill as ceo, was looking at taking the firm back into prop trading.
Although representing a major backflip in Citigroup's strategy, most competitors are not surprised by the firm's change of heart, saying the move is necessary to keep up with more aggressive prop traders such as Goldman Sachs. "With tight credit spreads and low interest-rates, everybody is bumping up their prop desks to get better participation," noted one pro.