Citigroup, Inc (NYSE: C) may move a team of proprietary traders into its hedge-fund operations in order to comply with the Dodd-Frank Act, according to a report from Business Week.
The traders, led by Sutesh Sharma, currently operate in Citigroup, Inc (NYSE: C)’s Principal Strategies Unit and would be reassigned to Citi Capital Advisors, which generally oversee money for outside investors, the report said citing anonymous sources. The sources said that Citigroup, Inc (NYSE: C) would likely setup the traders as managers of hedge funds and raise money from outside investors to redeem its stakes.
“This may be a way of keeping a high-margin capital- markets business in the fold, within the language of the law,” said David Hendler, a senior analyst at New York-based research firm CreditSights Inc to Business Week. “They would be transforming it from an- interest-plus-capital-gain business into a fee business.”
Most banks say that proprietary trading is a small fraction of their total business and that most of their trades are done on behalf of their customers. Citigroup, Inc (NYSE: C)’s proprietary trading activities represented about 2% of the firm’s total 2009 revenue, or about $1.6 billion, the report said. The report also said that Goldman Sachs Group Inc. (NYSE: GS) gets about 10% of its revenue from proprietary trading.
Citigroup, Inc (NYSE: C) is also considering taking members of the Principal Strategies team and distributing them across the bank’s primary client-facing trading operations based on their specialties, said the sources. Stock-savvy proprietary traders could join Citigroup, Inc (NYSE: C)’s single-stock trading team in a specific niche, the sources suggested.
