Citigroup 'boosting profits' through hedge fund

18 May 2011

Citigroup is bolstering its profits through a hedge fund that gambles the lender's money on mortgage debt, it has been found.

According to internal reports gathered by Bloomberg, the bank's mortgage/credit opportunity fund increased by 16 per cent in the first four months of this year, which saw it almost double its 2010 pace.

The news agency said that this kind of tactic being used by Citigroup - which took a $45 billion bailout after suffering losses with regards to subprime home loans - is one that they plan to restrict.

It explained that the lender may seek new investors prior to the implementation of the Volcker Rule, which will force bank holding companies to stop betting their own money.

Charles Whitehead, an associate professor of law at Cornell Law School in New York, said: "If the Volcker rule gets defined the way it was originally intended to be defined, then they’re probably going to need to divest their interest."

The Financial Times recently reported that Citigroup is looking to take on more than 500 new members of staff in the next few years to strengthen its securities business.

By Tony Aynsley

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