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Citibank agrees fine to settle charges it misled investors with high risk mortgages

Friday, July 30th 2010 - 06:00 UTC
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Differences over the real value of the Yuan offend Beijing Differences over the real value of the Yuan offend Beijing

Banking giant Citigroup has agreed to pay 75 million US dollars to settle civil charges that it misled investors over potential losses from high-risk mortgages. It agreed the settlement with US financial watchdog the Securities and Exchange Commission (SEC).

The SEC said Citigroup had repeatedly made misleading statements about the extent of its exposure to subprime loans as the housing market slumped.

Earlier this month, Goldman Sachs agreed also settled civil charges. Those charges concerned Goldman's marketing of mortgage investments as the US housing market faltered. Its 550 million USD fine was the biggest the SEC had imposed on a bank.

Citigroup had said in 2007 that its exposure was 13 billion USD or less. The SEC said it exceeded 50 billion. SEC Enforcement Director Robert Khuzami said Citigroup had misled analysts and the market of its ability to reduce its sub prime exposure.

“In fact, billions more in... sub prime exposure sat on its books undisclosed to investors,” Mr Khuzami said. “The rules of financial disclosure are simple - if you choose to speak, speak in full and not in half-truths.”

Citigroup struggled during the financial crisis and received among the largest bailouts from the US government. Of the 45 billion USD it received 25 billon was converted to a government ownership stake last summer with the remainder being repaid.

The 75 million fine will not make much of a dent in bank's balance sheet. It earned 2.7 billion in the three months to the end of June.

Citi said it was pleased to have reached agreement with the SEC and that neither the bank not any individuals had been charged with “intentional or reckless misconduct”.

SEC Enforcement Director Robert Khuzami China allows publication of IMF staff report, first time since 2006.

China has allowed the publication of an International Monetary Fund (IMF) staff report for the first time since 2006. China had previously blocked the annual report's release because it objected to the IMF view that its currency, the Yuan, needed to be a lot stronger.

The report contained some criticism, saying “several directors agreed that the exchange rate is undervalued”, but added that others disagreed. However, it has been suggested that the report has been toned down.

The Reuters news agency said that the final report omitted a staff estimate, contained in a draft version, that the Yuan was between 5% and 27% undervalued.

Many commentators believe that China manipulates its exchange rate to give it a competitive advantage, keeping its value low in order to boost its exports.

The European Union and the US have both called for China to allow its currency to strengthen, and last month Beijing took its first step toward making the Yuan more flexible, when its central bank raised the centre point of the currency's official trading band.

“I would hope to believe the fact that the Chinese decided to release the staff report reflects a view on their part that the report was balanced, was fairly reflective of their views as well as the staff's views and the overall picture... was even-handed,” said the IMF China mission chief Nigel Chalk.

China has not been the only country to refrain from publishing the IMF staff report. According to a review of the IMF transparency policy in 2009, about 88% of reports are published.

Categories: Economy, Politics, International.

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