Nuns and Public Workers Demand Citigroup Break-up

(November 15, 2012) — A convent of holy sisters and a public sector pension fund in the United States have called on Citigroup to consider a break-up to become more efficient and better serve its shareholders.

The Benedictine Sisters of Mount St. Scholastica in Kansas along with the American Federation of State, County & Municipal Employees (AFSCME) Employees’ Pension Plan lodged a proposal with the giant bank asking its directors to explore a possible separation of one or more of its business units.

The two groups are Citigroup shareholders though do not hold large numbers of stocks in the company. They lodged the complaint through Trillium Asset Management – an independent funds house that specialises in socially responsible investing. The Benedictine Sisters have previously been active shareholders. Last year, through Trillium Asset Management, they asked coatings manufacturer PPG Industries to report to shareholders that the company had fulfilled and beaten its obligations to responsible industry.

“Despite some positive steps taken since the start of the financial crisis, we believe Citigroup’s progress toward simplifying and de-risking its business has been slow and incomplete. Citigroup boasts many attractive attributes, but remains burdened by excessive complexity, as well as the stigma and risks associated with being named a ‘too big to fail’ institution,” said Matthew Patsky, CEO of Trillium Asset Management.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

The consortium said Citigroup’s shares had consistently traded below book value since late 2008; the bank failed the Federal Reserve’s CCAR stress tests in March this year, and regulators continued to forbid it from returning significant capital to stockholders due to concerns over its financial stability.

“There is a gap of almost $50 billion between what Citi says its assets are worth and what the market is saying,” said Lee Saunders, chairman of the AFSCME Employees Pension Plan’s Board of Trustees. “It is high time that the board gave shareholders a plan for recovering this value.”

A spokesperson for the bank said: “Citi has sold more than 60 businesses and reduced assets in Citi Holdings by more than $600 billion since the credit crisis began. Our capital levels are among the highest in the industry and we expect to continue to build capital by generating earnings in our core banking businesses and by continuing to reduce non-core assets.”

Last year shareholders voted against compensation packages for Citigroup executives. Citigroup’s CEO Vikram Pandit and COO John Havens abruptly resigned last month. It was revealed through a regulatory filing last week that each had received over $6.7 million in “incentive awards” after quitting the company.

Earlier this year Morgan Stanley settled a dispute with the Sisters of Charity of Jesus and Mary, the Holy Faith Sisters, and a consortium of other smaller shareholders over a bond issued by German financial group Dresdner Bank.

(November 15, 2012) – It is too bad investors can’t buy shares of the US Securities and Exchange Commission (SEC).

The regulatory agency returned double its budget in fiscal year 2012, levying fines totaling more than $3 billion. Of course, those fines go to wronged parties, not the SEC itself, which has nevertheless had an active and successful year.

“The record of performance is a testament to the professionalism and perseverance of the staff and the innovative reforms put in place over the past few years,” said SEC Chairman Mary Schapiro in a statement. “We’ve now brought more enforcement actions in each of the last two years than ever before including some of the most complex cases we’ve ever seen.”

It filed 734 enforcement actions in the year ending September 30, 2012—just shy of 2011’s record-breaking 735. This year’s total included more major and highly complex cases than ever, such as the insider trading charges against former McKinsey & Co. global head Rajat Gupta for tipping off convicted hedge fund manager Raj Rajaratnam.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“It’s not simply numbers, but the increasing complexity and diversity of the cases we file that shows how successful we’ve been,” said Robert Khuzami, director of the SEC’s enforcement division. “The intelligence, dedication, and deep experience of our enforcement staff are, more than any other factors, responsible for the Division’s success.”

Judging by the SEC’s budget for fiscal year 2013, the numbers and scale of regulatory action are only set to grow. The House of Representatives is controlled by the Republican Party, which tends to advocate for small government and limited regulation–but Congress has approved a $245 million increase to the commission’s current $1.5 billion budget. This will support an additional 676 positions over the current staffing levels, according to government documents.

Still, legislators are seeing the financial regulator as money well spent—particularly because most of its budget comes from fees on securities transactions. Seven years ago, the SEC’s funding was sufficient to provide nineteen examiners for each trillion dollars in investment adviser assets under management, according to the SEC’s report to Congress justifying its 2013 budget. Now, there are ten examiners per trillion dollars.

“A number of financial firms spend many times more each year on their technology budgets alone than the SEC spends on all of its operations,” the report says. “Similarly, our enforcement teams bring cases against firms that spend more on lawyers’ fees than the agency’s annual operating budget.”