Citigroup Equity-Trading Revenue Hurt by Ukraine Hedging

Citigroup Inc.’s equity-trading revenue was cut by about $100 million in the second quarter because of the cost of protecting against potential market turmoil the bank expected to result from the unrest in Ukraine.

Equity-market revenue tumbled $226 million, or 26 percent, to $659 million in the period, New York-based Citigroup said today in a statement. About $100 million of the decline was attributed to positions the bank took to protect itself against swings in stock prices triggered by Russia’s conflict with Ukraine, Chief Financial Officer John Gerspach said on a conference call with analysts.

“We actually hedged our equities book in Europe in anticipation of significant negative market reaction to the Russia-Ukraine situation, which ultimately didn’t materialize,” Gerspach said in an earlier call with reporters. “Our actions to de-risk our book resulted in realized losses during the quarter.”

The muted equity price swings in the second quarter were reflected in the Chicago Board Options Exchange Volatility Index, or VIX, which fell 17 percent in the period. Ukraine President Petro Poroshenko called off a cease-fire on July 1, one day after the end of the quarter. The VIX climbed about 3 percent since.

The equity-trading decline for Citigroup coincided with the departure of senior executives, some of whom left for hedge funds. Simon Yates, head of equity derivatives, left for Two Sigma Investments LLC earlier this month. His exit followed that of Michael Pringle, the London-based global head of equities trading who left for Moore Capital Management LP, and Adrian Faure, global head of equity sales. Derek Bandeen is head of equities for Citigroup.

Bright Spot

Revenue from fixed-income markets declined 12 percent in the second quarter from a year earlier to an adjusted $3 billion.

One bright spot was equity underwriting, where second-quarter revenue jumped 31 percent from a year earlier. For the first half of the year, equity underwriting revenue surged 26 percent to $696 million, according to results posted on the company’s website. That’s the highest first-half revenue for the unit since 2007, when it totaled $1.06 billion.

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