Citigroup announced that the company will cut down on block trading businesses as one of the bank's strategy to protect the firm from any losses, especially with current market uncertainty. The bank also plans to avoid its client from big losses as the trading could give a high return but at the same time, the client could risk losing more than they invested when the market turns south.
The latest decision comes just ahead of the bank's third quarter earnings announcement, set to be announced on October 14th according to Dakota Financial News. Although the bank denies that its decision to scale down in block trading is due to a loss they are making. However according to Reuters report, the bank has dropped in their profit ranking for block trading among the US banks to the eight place.
Block trading is an investment instrument used by banks to buy a huge amount of shares directly from a company at a price lower than the current market value before selling it quickly to other investors at a higher price. The practice, according to the bank's data, could jeopardize bank's capital as high as $20 million when the market goes against the trend predicted by the bank.
Citigroup's Chief Economist, Willem Buiter in an interview with CNBC also told the news agency in an interview that the bank is predicting a global recession next year. He also added that the global growth will fall below 2 percent causing higher unemployment rate. The prediction was made based on tightening monetary policy and not due to China's policy alone according to Buiter.
The Standard & Poor's 500 index plunged as much as 7 percent during the second quarter of 2015. The index even recorded a massive 11 percent drop in just 10 days in mid-August this year. This had affected the block trading business as profit from it also dropped 4 percent compared to the same quarter last year.
The bank said its decision is only for the block trading business and the bank will continue to invest aggressively in the stock market. This as the bank just announced in early September that it will reopen its hedge fund investment arm.
While Citigroup decided to scale down on block trading, its competitors are still making a profit from the trade. Goldman Sachs Group Inc. managed to surpass Citigroup to become the biggest winner in the last quarter with 25.6 percent market share of total proceeds. Morgan Stanley and Credit Suisse AG managed to get to second and third place respectively.
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