Citigroup Finishes $869 Million Debt Buyback From Hawaii

Citigroup Inc., the third-largest U.S. bank, completed an $869 million buyback of auction-rate securities it sold to Hawaii, more than four years after the market for the debt collapsed during the financial crisis.

The bank purchased the remaining $231 million balance of the securities at face value, Governor Neil Abercrombie said in a news release. Under a 2010 agreement, Citigroup was required to buy bonds still owned by the state in June 2015, he said.

“By working with Citigroup Global Markets, Inc., the state of Hawaii was able to sell, without incurring any loss, all of the securities in an accelerated manner,” said Abercrombie, a 74-year-old Democrat.

Hawaii’s treasury invested more than $1 billion in auction-rate securities backed by student loans, almost one-third of its spare cash, in the eight months before the $330 billion market for the short-term debt imploded during the credit crisis.

Demand for the bonds, which were sold by investment banks as equivalent to cash, faltered when Wall Street firms stopped stepping in as buyers of last resort. When the auctions failed, investors were stranded, unable to sell their bonds without losses.

Hawaii purchased all the auction-rate securities for its short-term treasury account from Pete Thompson, a Citigroup broker in Honolulu, the state capital. He now works for Morgan Stanley in Honolulu, according to a filing with the Financial Industry Regulatory Authority.

Thompson didn’t immediately respond to a call seeking comment.

Auditor’s Report

“Citigroup is pleased to have worked closely with the Abercrombie administration in the removal of all the auction rate securities from the state’s portfolio well ahead of the agreement schedule,” Frank Chin, Citigroup’s co-head of public finance, said in the governor’s press release.

A March 2010 report by Hawaii’s auditor found that the investment in auction-rate securities violated state law by exceeding guidelines that limit short-term investments to five-year maturities and student loan auction-rate securities to 20 percent of the treasury’s holdings.