Citigroup Chief Sees More Volatility in Second Half

Citigroup Inc. (C) Chief Executive Officer Michael Corbat said volatility probably will rise later this year as investors get more aggressive to reach their annual goals.

Money managers have struck a defensive tone in 2014 and will have to take more risk in the second half to hit their targets, Corbat told analysts today at an investor conference. The latter part of this year may see Citigroup rid itself of OneMain Financial Inc., the subprime lender tagged for sale, he said.

“We find ourselves heading into June and people still have years to make,” Corbat said in New York, where the third-largest U.S. bank has its headquarters.

Citigroup is grappling with a slowdown in trading while dealing with setbacks that include a $400 million loan fraud in Mexico and rejection by regulators of a proposed dividend increase. Chief Financial Officer John Gerspach told analysts this week that second-quarter trading revenue could be down 20 percent to 25 percent from year-earlier levels in a market he described as “becalmed.”

Executives at JPMorgan Chase & Co. and Bank of America Corp. have also said this week that trading during the quarter has been sluggish.

Smaller Cushion

Corbat, 54, said heightened regulation of financial firms probably will cause volatility to rise higher than it would have without new rules because their balance sheets “aren’t going to be there to be that shock absorber in the markets.”

Citigroup may dispose of its investment in OneMain through a sale to a private-equity firm, an initial public offering or some combination of the two, Corbat said. The transaction may happen late this year or early next, he said.

The bank has sold $600 billion in assets and exited more than 60 businesses to shake off lingering effects of the 2008 financial crisis. The stock dropped 7 cents to $47.25 at 12:20 p.m. in New York.

Corbat reiterated that the bank doesn’t plan to try again this year to get its capital plan and dividend increase approved by the Fed, preferring to concentrate on a more sustainable improvement of the bank’s processes in 2015 instead of a “quick fix.”

As for the Mexico loan fraud, Corbat said the problem is “contained.” The episode, which forced the CEO to cut previously reported profit for 2013, was triggered in part by inaction of employees who didn’t elevate their concerns, Corbat said. At least a dozen people were fired after the disputed loans were uncovered earlier this year at the Banamex unit.

To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net Rick Green

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