Citi's Japanese Unit Faces Ban From Auction Participation

The Ministry of Finance in Japan has suspended Citigroup’s C Japanese unit, namely Citigroup Global Markets, from availing special entitlements granted to JGB Market Special Participants for a period of one month, beginning Jun 13.

As a result, Citi will not be able to take part in non-price competitive auctions, and liquidity enhancement and buy-backs auctions.

The decision follows a verdict from the Financial Services Agency that required the concerned unit to improve supervision of operations as it was found to have overlooked a manipulative trading practice by one of the bond traders. Also, the agency imposed a fine of ¥130 million ($1.1 million) on Citigroup Global Markets.

The company was accused of practicing spoofing, whereby it overlooked and executed fake trading orders, attempting to manipulate the prices of Japanese government bond futures on the Osaka exchange in late October 2018.

The short-period fine is not expected to impact Citi’s performance remarkably. “Citi will continue to enhance governance and internal controls and to develop and implement preventive measures to ensure that the issues identified by the regulators will not occur again,” the company said in response to the suspension order.

Last week, Citi along with Barclays PLC BCS, JPMorgan JPM, Mitsubishi UFJ Financial Group MUFG, and Royal Bank of Scotland were accused of rigging prices in the $5.1 trillion-a-day foreign exchange market. A penalty of around 90 million Swiss francs was imposed on the companies, but Citigroup was hit the hardest with a fine of 28.5 million francs.

Citi’s involvement in litigation issues might keep legal expenses elevated. Moreover, dismal performance of equity market revenues keeps the top line under pressure. However, the company remains committed to execute growth strategies and continues to make steady progress toward financial targets.

In a bid to bolster presence in Southeast Asian markets, Citi partnered with Grab, a ride-hailing transport services company, to launch co-branded credit cards. (Read more: Citi to Launch Co-Branded Credit Card, Boost Asia Client Base)

Over the past six months, the stock has gained 21.7% compared with 8.7% growth recorded by the industry.

Currently, Citi carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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