) has hit the headlines for all the wrong reasons. In order to
settle charges for breaching position limits on wheat futures
trading, Citigroup will pay $525,000, according to media sources.
CITIGROUP INC (C): Free Stock Analysis Report
CME GROUP INC (CME): Free Stock Analysis Report
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The allegations are associated with the long positions held by
Citigroup in 2009, which surpassed the caps imposed on such trades.
These trades took place on the Chicago Board of Trade, a unit of
CME Group Inc.
This penalty, imposed by The Commodity Futures Trading Commission
(CFTC), comes just a couple of weeks before the implementation of
the new limits on the trading of natural gas, wheat and certain
other items under the Dodd-Frank Act.
The measures are aimed at reducing excessive speculation. Such
speculative moves are said to be responsible for amplifying the
volatility in the price and increasing the price of that commodity.
Of late, Citigroup has been making news for a number of litigation
settlements. In an effort to reach a settlement with investors who
bought its shares between February 2007 and April 2008, last month
Citigroup agreed to shell out $590 million. The settlement, one of
the largest of its kind, has accused Citigroup of misleading its
investors by withholding information regarding its toxic asset
transactions during that period.
We believe that with the resolving of the suit, the company stands
to lose its hard earned money which could have been otherwise used
for growth purposes. Though the company has adequate reserves to
meet this settlement amount, we believe that it could have been
steered towards the company's growth initiatives, had it not been
subject to such litigations.
Citigroup, otherwise, boasts of an impressive global footprint and
attractive core business. The company has restructured its business
and overhauled its risk management. It is reducing its risky
exposures by trimming the problem assets, which in turn frees up
capital to be invested in its core business. Yet, a low interest
rate environment, regulatory headwinds and litigation risks remain
Citi currently retains its Zacks #3 Rank, which translates into a
short-term Hold rating. Considering its fundamentals, we have a
long-term Neutral recommendation on the stock.