Governance Problems in Citigroup Japan

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Case Details:

Case Code : BECG043
Case Length : 14 Pages
Period : 2001-2004
Pub. Date : 2004
Teaching Note :Not Available
Organization : Citigroup
Industry : Financial Services
Countries : Japan, US

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts Contd...

The Action Taken

On September 14, 2004, SESC made a recommendation to the Prime Minister of Japan and the Commissioner of FSA to take disciplinary action against Citigroup's Private Banking unit in Japan.

It stated that similar problems of non-compliance with regulations had been reported against the bank in different parts of the world and criticism against the group's disregard for a country's regulations was mounting. The group was already facing legal suits in other countries (Refer Exhibit IV for legal problems faced by Citigroup). FSA then ordered Citigroup to suspend new Private Banking business by the end of September 2004. It was given a year's time to wind up all Private Banking operations in Japan by the end of September 2005. Apart from discontinuing Private Banking business, Citigroup's consumer banking business was banned from accepting foreign currency deposits from new customers for a month starting September 29, 2004...

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The Aftermath

The closure of the Private Banking unit in Japan, the second largest market, was a serious setback for Citigroup. Released in October 2004, Ludwig's report disclosed that the management of the Private Banking unit had knowingly and willfully committed all breaches of regulations. Citigroup's reputation was at stake, as the findings of the report were made public.

Immediately after its receipt, Prince started a clean-up programme. Prince fired a number of employees, whom he held accountable for the irregularities, including three prominent senior executives - Deryck Maughan, Chairman of Citigroup International, Thomas Jones, Head of Investment Management and Peter Scaturro, Head of the Group's Private Bank. Twelve other staff of the Private Banking unit were asked to leave and for 11 others, salaries were cut. A new CEO, Douglas Peterson, who was appointed in May 2004 for Citibank Japan, was given the responsibility of renewing investor confidence. Prince promised to hire a new Chief Compliance Officer to oversee Japanese operations and to create an independent committee to monitor overall management in that country...

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Exhibit I: Financial Services Agency Japan
Exhibit II: Financial History of Citigroup
Exhibit III: Securities and Exchange Surveillance Commission, Japan
Exhibit IV: Citigroup's Legal Complications Across the World
Exhibit V: Problems in Other Departments
Exhibit VI: Highlights of the Business Improvement Plan (2004)


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