Citibank has come to an agreement with the US Securities and Exchange Commission (SEC) to buy back several billion dollars worth of auction rate securities, the risks of which had been misrepresented.
The SEC had recently looked into the situation and decided Citibank had mismarketed and sold the securities as being less risky than they were. Citigroup had promoted them as being as safe as similar cash based products though this is not the case.
Although Citibank are buying the securities back it is something they could really do without since they have been hit very hard by the collapse of the sub-prime lending market. Financing the buyback will damage the bank further as they will have to reimburse any customers who sold for a loss, on top of paying fines worth USD100 million.
British bank Alliance and Leicester is to be bought by Santander according to an announcement stating an agreement had been reached between the two parties.
The purchase price is understood to be GBP1.26 billion, the transaction to be made in shares. Santander will give one of their shares for every three Alliance and Leicester ones, giving the shares a value of 299 pence each which is around 33 percent higher than the share value at the close of business last week.
Interestingly, although the Alliance and Leicester as well as many other UK and international banks have suffered on the back of the credit crunch Santander have had a very good year. They have seen good returns from Latin America it appears and this has enabled them to look at acquisitions such as this one.
Citibank has revealed that it intends to reduce its portfolio having suffered at the hands of the sub prime lending difficulties in the USA.
Of all the financial institutions to suffer over the American mortgage problems Citibank felt the pain more than any other. The sub prime area of lending is one that they were heavily involved in. Due to this they are to sell around 20 percent of their assets over the next couple of years, worth around USD400 billion.
They have already announced the areas of business where the cuts will be made, namely consumer banking and securities banking. Citibank has stated it has an objective of generating revenue growth of 10 percent within 36 months, and these cuts are part of their plan. By freeing up resources they can focus more on the areas where growth can be achieved whilst reducing their exposure to potentially difficult markets.
