Citibank (NYSE: C) is rumored to be developing plans to expand its proprietary trading unit as the Obama administration is hoping to prevent banks from engaging in the controversial practice, according to a new report from Business Week, citing anonymous sources.
Citi’s proprietary trading unit took a hit when eight of its twenty-two employees left the unit after the government proposed banning the practice of proprietary trading.
Kevin Russell, Citibank’s head of stock trading in the Americas, told employees and securities firms which support the unit last week that Citi may increase the unit’s trading limits and capital. The report said that Citibank will also replace some or all of the analysts and portfolio managers that have left the company since February.
Proprietary trading is a process that bank’s use to perform equity trades for their own benefit. The Obama administration has proposed banning banks supported by the Federal Deposit Insurance Corporation from engaging in proprietary trading or owning hedge funds and private equity firms. The rule, proponed by after former Federal Reserve Chairman Paul Volcker, has since been named the “Volcker Rule.”
While testifying to a congressional oversight panel on March 4th, Citibank CEO Vikram Pandit said that banks should not use their own money to speculate.
“Proprietary trading is not a big part of our business at all,” Pandit said. “You’re using the company’s capital, and I don’t believe you should use, banks should use capital to speculate that way.”
The company’s rumored moves and public statements appear to be in contradiction. Analysts commenting on the move consider Pandit’s statements to congress to be more academic in nature and have stated that Citibank will benefit from making use of proprietary trading as long as the rules are not finalized.
