by Pam Martens and Russ Martens, Wall St On Parade:

Federal regulators are rapidly becoming bigger Dark Pools of information than those secretive stock exchanges run by the big banks on Wall Street. On Tuesday, September 29, when all eyes were focused on the presidential debate to occur that evening, the Justice Department issued a press release announcing the fourth and fifth felony counts against JPMorgan Chase in the past six years. In an unprecedented move, the Justice Department did not hold a press conference to explain why the country’s largest bank is allowed to perpetually commit felonies with no change in management. The bank admitted to the charges and was put on a three-year probation – its third such probation in six years. Jamie Dimon, the Chairman and CEO of the bank, who has presided over all five felony counts, was left in place at the bank.

Yesterday, when all eyes were on the vice-presidential debate last night, the Federal Reserve and Office of the Comptroller of the Currency (OCC) announced consent decrees with Citigroup, the third largest bank in the country. The OCC imposed a $400 million fine on Citigroup’s federally-insured commercial bank, Citibank, and stated in its Consent Order that it had “identified unsafe or unsound practices with respect to the Bank’s internal controls, including, among other things, an absence of clearly defined roles and responsibilities and noncompliance with multiple laws and regulations.”

“Noncompliance with multiple laws and regulations” means the bank has broken “multiple laws and regulations.” But, apparently, the laws it broke, how it broke them, and who benefited and by how much is just too explosive a story to see the light of day. The Consent Orders from both the OCC and Federal Reserve failed to specify exactly what crimes Citigroup had committed and instead used vague generalities such as “unsafe or unsound practices.”

The Federal Reserve’s Consent Order did include two deficiencies that jumped off the page: “capital planning” and “liquidity risk management.” Problems with capital and liquidity are not something one wants to read about Citigroup in 2020 because it is the bank that became insolvent and received the largest taxpayer bailout in global banking history during the 2007 to 2010 financial crisis.

The bank has obviously done something very bad because the OCC has put it on a very tight leash – which is done only in extreme circumstances. The OCC’s order requires that “With the exception of ordinary course transactions, such as hedging, market making, and securitization transactions…the Bank shall not complete any new portfolio or business acquisitions until it has received prior written determination of no supervisory objection to the review process from the Deputy Comptroller.” That means that Citibank can’t open new retail bank branches, acquire other banks, or increase its already massive derivatives book (other than hedging) without the express consent of the OCC.

Equally concerning, the Federal Reserve’s Consent Order orders Citigroup (the bank holding company that owns Citibank, the federally-insured bank) to comply with 12 CFR 225.4(a). That statue reads in part:

“(2) Whenever the Board believes an activity of a bank holding company or control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) constitutes a serious risk to the financial safety, soundness, or stability of a subsidiary bank of the bank holding company and is inconsistent with sound banking principles or the purposes of the BHC [Bank Holding Company] Act or the Financial Institutions Supervisory Act of 1966, as amended (12 U.S.C. 1818(b) et seq.), the Board may require the bank holding company to terminate the activity or to terminate control of the subsidiary, as provided in section 5(e) of the BHC Act.

“(b) Purchase or redemption by bank holding company of its own securities –

“(1) Filing notice. Except as provided in paragraph (b)(6) of this section, a bank holding company shall give the Board prior written notice before purchasing or redeeming its equity securities if the gross consideration for the purchase or redemption, when aggregated with the net consideration paid by the company for all such purchases or redemptions during the preceding 12 months, is equal to 10 percent or more of the company’s consolidated net worth. For the purposes of this section, ‘net consideration’ is the gross consideration paid by the company for all of its equity securities purchased or redeemed during the period minus the gross consideration received for all of its equity securities sold during the period.”

Has Citigroup done something improper regarding the tens of billions of dollars it has spent buying back its own stock? Until March 31, 2015, Citigroup was spending hundreds of millions of dollars a quarter to buy back its stock. But beginning with the quarter ending June 30, 2015, it started to spend billions of dollars a quarter. And, as we headlined on July 24, Citigroup Has Been Paying Out More than It Earned for Years; Now It Has $102.5 Billion in Debt Maturing within Three Years.

Also, as we previously reported, Citigroup (as well as other Wall Street banks) is trading its own stock in its own Dark Pool, potentially manipulating share prices. As the last financial crisis deepened in 2009, Citigroup’s share price touched 99 cents. Thus, it is highly motivated to attempt to protect its share price in the current financial crisis.

In June we reported that the Fed had quietly reimbursed Citibank $3.077 billion under the Fed’s Paycheck Protection Program Liquidity Facility, a program that reimburses banks for the loans they made under the CARES Act PPP program, which are guaranteed by the Small Business Administration. The Fed accepts the PPP loan as collateral and charges the bank a miniscule interest on the loan of 0.35 percent. As of the Fed’s last PPP report dated August 31, 2020, no other major Wall Street bank had asked to be reimbursed by the Fed – just Citibank, raising further questions about its “liquidity risk management.”

Whatever laws Citigroup/Citibank has broken, they must be quite serious. Jamie Dimon is still at the helm of his bank after an unprecedented five felony counts in six years. But on September 10 of this year, the CEO of Citigroup, Michael Corbat, abruptly announced he would be stepping down in February. In addition, the OCC noted in one of its orders that it was reserving the right to limit the bank’s payment of dividends, and reserving the right to require the bank “to make changes to its senior executive officers or any and/or all members of the Board.”

The OCC also noted that there had been “inadequate reporting” to the Citigroup Board, which “hinders its ability to provide effective oversight.”

To put this whole fiasco into perspective, just 12 years ago Citigroup became such a basket case that it required the following to rescue its sinking carcass: an infusion of $45 billion in capital from the U.S. Treasury; a government guarantee of over $300 billion on its dubious “assets”; a guarantee of $5.75 billion on its senior unsecured debt and $26 billion on its commercial paper and interbank deposits by the Federal Deposit Insurance Corporation (FDIC); and a secret revolving loan facility from the Federal Reserve that sluiced a cumulative $2.5 trillion in below-market-rate loans to Citigroup from 2007 to the middle of 2010.

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