WSJ : Citigroup Stumbled Into Risk-Control Lapse In July

(RTTNews) - A small London hedge-fund firm and a lapse in bank risk controls caused a panic inside Citigroup Inc. (C) in July, after its executives discovered a series of trades they estimated could cost the bank as much as $400 million, the Wall Street Journal reported.

The concerns made a brief appearance in the bank's second-quarter earnings released on July 16 in which Citigroup said it had reserved $175 million stemming from "valuation adjustments related to certain financing transactions," but the details have otherwise remained a mystery.

Citigroup reportedly clawed back all of the money at risk over the next three months. But the slip-up adds to a series of technology snafus at global banks and is reverberating inside the U.S. lender, which has worked to fix shortcomings in its systems and oversight.

Citigroup's problem was rooted in the bank's prime-brokerage unit, which handles trades and extends loans to hedge funds while holding their assets. The trades in mostly bonds were made by LNG Capital LLP, a London hedge fund run by 52-year-old Louis N. Gargour and a Citigroup prime brokerage client since 2011, the Journal reported citing the people familiar with the matter.

LNG is a small fund, with about $150 million in assets. Most of its trades went through automated systems with infrequent human interaction on Citigroup's part. On the dates LNG entered trades, Citigroup's systems erroneously assigned higher than intended values to the bonds LNG held in its account.