Buba-Citigroup case backs national oversight-paper

[FaGal]

Buba-Citigroup case backs national oversight-paper
www.reuters.com - February 10, 2005


FRANKFURT - Controversial trading by Citigroup bond dealers last year highlights the importance of national financial supervisors rather than a European one, a Bundesbank board member said in an interview on Thursday.

"The Citigroup case shows that we need supervisors with national competence and close to the market. A centralised European bank supervisor would not be able to do that," board member Edgar Meister told the Financial Times Deutschland newspaper.

Citigroup is being investigated by German prosecutors and Britain's Financial Services Authority for a multi-billion-euro trade in euro-zone government bonds, part of which was over electronic bond trading platform MTS, last August.

German prosecutors are looking into whether the firm manipulated the market when it sold and then bought billions of euros worth of debt in quick succession last August. In recent days media reports and sources close to the matter said a number of other national regulators would be looking into the trade.

"It was not the case in Germany, but in smaller countries similar behaviour could lead to systemic risks," Meister said of the Citigroup trades.

Meister is also chairman of the European Union's Banking Supervision Committee.

Citigroup sold about 12.4 billion euros ($16 billion) of cash bonds on Aug. 2 and bought back 3.77 billion euros of the paper half an hour later. The deal earned the bank a $17.5 million profit, according to German financial watchdog BaFin.

European Central Bank President Jean-Claude Trichet weighed in last week with the comment that "regulators and surveillance authorities are doing what they have to do in such a case."

Rival traders have said the Citigroup trade broke a "gentlemen's agreement" in the market.

Citigroup has expressed its regret over the trade, which chief executive Chuck Prince referred to as "knuckle-headed", but does not believe it has broken any market rules or regulations.