This letter is addressed to Geoffrey O Cole

Frake, Ronald

Yale University

Yale University EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Documents Browse by Media Type 12-22-2005 OCC Letter from Ronald H Frake to Geoffrey O Coley Re Citibank Derivatives Examination Findings Ronald Frake Follow this and additional works at: https://elischolar.library.yale.edu/ypfs-documents Recommended Citation Frake, Ronald, "OCC Letter from Ronald H Frake to Geoffrey O Coley Re Citibank Derivatives Examination Findings" (2005). YPFS Documents. 5707. https://elischolar.library.yale.edu/ypfs-documents/5707 This Document is brought to you for free and open access by the Browse by Media Type at EliScholar – A Digital Platform for Scholarly Publishing at Yale. It has been accepted for inclusion in YPFS Documents by an authorized administrator of EliScholar – A Digital Platform for Scholarly Publishing at Yale. For more information, please contact elischolar@yale.edu. c) Comptroller of the Currency Administrator of National Banks 880 Third Avenue, Fifth Floor New York, New York 10022 212-527-1020 December 22,2005 Mr. Geoffrey O. Coley, Co-head Global Fixed Income Division Citibank, N .A. 390 Greenwich Street, Fourth Floor New York, NY. 1 00'13 Dear Mr. Coley: 13/t Attached is a copy of our conclusion memorandum from our recently completed Credit Derivatives Trading examination. Our objectives were to review the activities performed within Structured Credit Derivatives, Credit Trading, and Total Return Swap lines of business. We assessed the quantity of risk and quality of management for both priee and transaction risks related to the front and middle office processes. We also performed a follow-up of our November 2004 examination of Global Portfolio Optimization. The findings of this examination are disappointing, in that the business grew far in excess of management's underlying infrastructure and control processes. Furthering our concerns is that underlying management processes in the middle office were not capturing relevant metrics to detennine whether the pace of growth was sustainable and sufficient. Additionally, control functions raised questions as to the business's capacity to accommodate future growth, but warnings went unheeded. We recognize, however, that there has been considerable turnover of management of these businesses and that management did very recently recognize most underlying problems. This resulted in the development of a comprehensive remediation plan to address major infrastructure and systems issues immediately preceding our examination. Ratings are provided for each trading desk reviewed, but on an overall basis, price risk across the three desks is moderate and transaction risk is high. Management oversight is considered less than satisfactory . This Is .he properl,. of .he oec aad Is furnlsllw to tbe bank elllmiud for It I conftdenliallse. llndn- no circum.lancel sb.ii ih~ hank. or an,. of lis dlrecton. IImc~n or employeD diKlo.w In Iny .. anMr die dotllment or .IY portion tbtreof to II.Y perSOn or orRlnlulian not omcially connected 10 the bank IS officer. director. employec, an_y. or auditor. Any olber dlsdolure or IISf offbls donmenl ma,. be ,ubjeft to the penll'lics pro,lded in Scrtlon 641 ofTII.e IS. liS Code. ~onfidential & Non-public acc Information aCC3..o0nn717A Senior trading management is responsible to ensure that growth is in line with the capacity of underlying controls and management, which includes the ability to measure and monitor this expansion. Given this oversight failure, we are considering options that would limit the bank's ability to perform future business. We will await management's response to this examination before detcnnining a relevant course of action. Management should reflect on how this situation occurred, and what structural or process changes are warranted to ensure that future growth is measured, monitored, and controlled in a way that is appropriate for a national bank. Please provide a response to our matters requiring attention, to include a projected date for corrective action. within 30 days of the receipt of this I~tter . Please feel free to contact either National Bank Examiner Daniel Staehle or me at (212) 527-1040 or 1043 respectively if you have any questions or comments. We appreciate the level of cooperation extended to us by management during this examination. 7?i~' Ronald H. Frake National Bank Examiner cc: D. Bushnell, L. Kaden, M. Helfer, B. Howard, S. Kraweheck, T. RoUaeur, M. Wong R. Druskin, E. Greene, T. Maheras, C. Leat, 1. Palmer, Chron Confidential & Non-public acc Information OCC3-000071 , 

OCC Letter from Ronald H Frake to Geoffrey O Coley Re Citibank Derivatives Examination Findings

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OCC Letter from Ronald H Frake to Geoffrey O Coley Re Citibank Derivatives Examination Findings

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