Report says UK rules took Citi to brink

PORT

PORT into the US bank bailouts has raised questions about whether the Financial Services Authority (FSA) pushed Citigroup towards the brink in November 2008 in a bid to protect UK interests from another Lehman Brothers-type collapse.<br /><br />A footnote to a report by the Congressional Oversight Panel (COP) claims that the FSA ratcheted up liquidity restrictions on Citi a year ago when the group&rsquo;s shares were in freefall and there were fears it could go to the wall. <br /><br />It appears the FSA was worried about a repeat of Lehman Brothers when the London entity was drained of all cash in favour of the New York office just before the investment bank went under.<br /><br />Two months later, amid similar concern over Citi, the FSA demanded Citi keep $6.4bn (&pound;3.8bn) in a &ldquo;cash lockup&rdquo;, according to the COP report that cited members of the Federal Deposit Insurance Corporation.<br /><br />Commenting on events on November 21, 2008, the report said: &ldquo;Market acceptance of the firm&rsquo;s liabilities diminished, as the company&rsquo;s stock plunged to a 16-year low, credit default swap spreads widened by 75 basis points to 512.5 basis points, multiple counterparties advised that they would require greater collateralisation... and the UK FSA imposed a $6.4bn cash lockup requirement to protect the interests of the UK broker dealer.&rdquo;<br /><br />A spokeswoman for the FSA declined to comment. Since the collapse of Lehmans, the FSA has come up with tough new liquidity restrictions that are due to be implemented on 1 December. <br /><br />A separate footnote to the report shows that Citigroup management did not believe that the bank was headed for collapse while authorities were worried the bank would go under.