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Citi Proprietary Trader Quits for Nomura as Volcker Rule Looms

Paul Volcker, of Obama's Economic Recovery Advisory Board
Paul Volcker, chairman of President Obama's Economic Recovery Advisory Board, testifies at a House Financial Services Committee hearing in Washington, in March. Photographer: Joshua Roberts/Bloomberg

Citigroup Inc. proprietary trader Jay Glasser quit to join Nomura Holdings Inc., Japan’s biggest brokerage, as U.S. lawmakers pressure domestic banks to stop speculating with their own capital.

Glasser, 53, who was based in New York and specializes in derivative and currency trades linked to Japanese interest rates, generated an average of more than $10 million a year of revenue for Citigroup from 2007 through 2009, people with knowledge of the matter said. He started at Nomura last week and is based in New York, said Peter Truell, a spokesman for the Tokyo-based firm.

Glasser told his former bosses at Citigroup, which has lost at least 10 proprietary traders this year, that he quit partly because of concern that President Barack Obama’s proposed Volcker rule may force U.S. banks to divest or close proprietary-trading units, people with knowledge of the matter said. As a Japanese securities firm, Nomura wouldn’t be subject to the rule. Citigroup is the third-biggest U.S. bank by assets.

“The political and economic environment has changed, and it’s become more difficult for U.S. banks to accommodate guys like this,” CreditSights Inc. analyst David Hendler said. “Whereas if you’re Nomura, and you’re Japanese-regulated to a large extent, you may give that flexibility, because you’re trying to rise in the rankings and this guy might help.”

$25 Million Annual Revenue

Glasser, hired under former trading chief Thomas Maheras in 2007 from hedge fund Caxton Associates LP, generated more than $25 million of revenue in each of his first two years, people with knowledge of his record said. In 2009, he lost $20 million.

Citigroup’s revenue from fixed-income trading totaled $21.5 billion in 2009. Most proprietary trading units have higher margins than client-trading businesses and produce bigger payouts for the traders and executives who oversee them, said Hendler, who rates Citigroup’s stocks and bonds “overweight.”

Proprietary trading produced about 2 percent of Citigroup’s overall 2009 revenue, or about $1.6 billion, a person close to the bank said last month. The figure doesn’t include revenue from Phibro LLC, a proprietary energy-trading business that Citigroup sold last year, rather than face government scrutiny of head trader Andrew Hall’s $100 million pay package. Phibro had average pretax earnings of more than $300 million.

Glasser referred requests for comment to Truell, the Nomura spokesman, who declined to elaborate. At Citigroup, Glasser oversaw two people and reported to Andrew Morton, the London- based head of government-bond trading for developed economies, people with knowledge of the matter said.

Pandit Supports Reform

Citigroup spokeswoman Danielle Romero-Apsilos said the bank has no plans to replace Glasser, who tendered his resignation in February and remained an employee until late last month.

The Volcker rule, named after former Federal Reserve Chairman Paul Volcker, aims to reduce the risk of bank losses that might require future taxpayer-funded bailouts.

Vikram Pandit, Citigroup’s 53-year-old chief executive officer, has said at least four times that banks shouldn’t use their coffers to speculate, while stopping short of pledging that Citigroup would exit proprietary trading.

In an April 23 letter to Obama endorsing the president’s efforts to overhaul financial-industry and market regulations, Pandit wrote, “I believe banks should not speculate with their capital.” Citigroup is 27 percent owned by the Treasury Department after its $45 billion bailout in 2008.

Long-Short Group

Citigroup’s Long-Short Equity Group, a proprietary-trading unit that generated about $100 million of annual revenue, lost eight of its 22 employees earlier this year after leader Matt Carpenter and deputy Matt Newton quit to join Moore Capital Management LP. Carpenter told his former Citigroup bosses that he quit partly because of concern the bank might have to stop devoting capital to proprietary trading.

A ninth Long-Short Equity trader, Lars Schonander, quit last month, Romero said. Schonander, who specialized in Latin American stocks, is also joining Moore Capital, a person with knowledge of the matter said. Schonander declined to comment.

The Volcker rule wouldn’t cover hedge funds because they don’t take federally insured deposits.

Nomura, which in 2008 bought Lehman Brothers Holdings Inc.’s Asian and European units, is hiring after suffering the departures of at least 12 senior Lehman managers since March. Nomura Chief Financial Officer Masafumi Nakada said at an April 28 press briefing that “talented people are joining us to fill the gap.”

Nomura may have offered Glasser a bigger or more predictable pay package, said Michael Mayo, an analyst at Credit Agricole Securities USA who rates Citigroup’s shares “underperform.”

Glasser’s departure from Citigroup was “probably a combination of increased U.S. regulatory scrutiny on proprietary trading and increased oversight of compensation that would encourage some proprietary traders” to resign, Mayo said.

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