Some of our colleagues at MainFT have been digging into the mystery near-default of a major US financial institution back in March 2020, which we wrote about a few weeks back.
It was . . . Citi.
Citigroup suffered a technology glitch at the height of the market panic over coronavirus that left it relying on the grace of an exchange clearing house to prevent the bank from defaulting on margin payments for derivatives contracts.
The bank had a problem with payments technology that meant it was late to meet a margin call from a US clearing house run by Intercontinental Exchange in March 2020, according to several people familiar with the matter.
Derivatives executives told the Financial Times that malfunctions leading to missed margin calls were rare but not unheard-of. The incident highlighted the extent to which the financial system was under stress during the market sell-off at the onset of the pandemic.
Citi obviously has some form here. Just last month it managed to cause a flash crash in European stocks, which Bloomberg reports will probably cost north of $50mn. In October 2020 it was fined $400mn by US regulators over “longstanding deficiencies” in its risk and control systems.
Most hilariously of all, in the summer of 2020 it accidentally transferred $900mn by mistake to creditors of Revlon, instead of the intended interest payment of under $8mn.
Regarding the latest snafu, the bank said the following in a statement to the FT: “This matter resulted from a minor technical issue that was quickly resolved. Citi always maintained appropriate funds to meet its obligations.”
However, blaming “a minor technical issue” for a late margin payment at the peak of Covid-19 market mayhem is a bit rich. Big banks like Citi should be able to manage these things. Just imagine the convulsions it might have triggered if it had gotten out, whatever the cause?
As Ice’s Chris Edmonds said at the hearing where the near-default by a mystery institution was first revealed:
I had the keys to the castle at that point in time, and it would’ve been a very bad day (if Ice had declared a default) . . . It would’ve been cataclysmic at that moment in time . . . We chose to give the appropriate amount of time not to dislocate the market and create a bigger stress.
Source: news.google.com
