The Belgian Debt Agency is re-examining the role that Citigroup plays in its annual borrowing program, on the heels of Citi's recent controversial rapid-fire trading in European Union debt in which the firm is said to have sold €11 billion of bonds and then bought back €4 billion at a lower price in a two minute period. The U.K.'s Financial Services Authority has since announced it is investigating Citi's trading activities and the controversy surrounding these trades could set off a chain of events resulting in sovereigns awarding Citi fewer mandates, according to treasury officials. Belgium has issued €48 billion since 1999 and involved Citigroup as joint lead underwriter on two deals amounting to €7 billion. Baudouin Richard, director of the Belgian Debt Agency, said he is concerned about the impact of the firm's controversial trades on the overall liquidity of the market and has initiated a consultation process with the Agency's 16 primary dealers, including Citigroup, as a result. The process should be completed by the end of the month. "The discussion will address the dealers' commitment to supporting liquidity in the market, whether any of them are having difficulty providing liquidity post-Aug. 2 and whether Aug. 2 is an isolated incident or is in danger of recurring," said Richard.
Citigroup's trading could affect its relationship with other E.U. sovereigns, too. Agence France Trésor, for example, ranks its primary dealers based 40% on primary market activity, 30% on secondary market activity and 30% on qualitative criteria, according to Bertrand de Mazières, chief executive. The latter criterion could be affected by Citigroup's trading activities. "This ranking is useful for feedback purposes and the dealers also see it as a commercial tool," commented de Mazières.
Jeremy Hughes, Citigroup spokesman, declined comment on any matters relating to the recent trading and subsequent investigation.
