(Bloomberg) -- Citigroup Inc.’s losses on a botched trade in Australia jumped to more than A$70 million ($45 million), according to people familiar with the matter, in one of the biggest block trade debacles in Asia in recent years.
The US bank took a loss of about A$49.6 million after selling more shares in Goodman Group at a discount on Friday, adding to a roughly A$27 million loss earlier in the week, the people said, asking not to be identified discussing a private matter.
The incident is a reminder that there’s still work to be done as Chief Executive Officer Jane Fraser campaigns to repair the bank’s reputation for risk management and controls after a string of recent high-profile blunders.
The Wall Street behemoth was fined £61.6 million ($79 million) earlier this year by UK regulators after a London staffer’s fat-finger trade caused a flash crash in European stocks in 2022. That error ultimately wreaked havoc in bourses stretching from Paris to Warsaw, wiping out €300 billion ($318 billion) at one point.
And in 2020, the firm was plunged into a lengthy and embarrassing public court battle to recover funds after employees mistakenly sent almost $1 billion to Revlon Inc. creditors.
The loss in Australia almost matches Citigroup’s investment-banking fees in the country for the year, and underscores the risk of taking on massive block trades to win business from big clients. Under a block trade, banks typically agree to buy a large chunk of shares, often at a discount, before parceling them out to investors.
Citigroup under cut rivals to win the Goodman deal, the biggest block trade in Australia in seven years, only to see the trade unravel when it couldn’t sell the entire blocked at the agreed price.
Prospective underwriters were approached on Tuesday by China Investment Corp. and given just a handful of hours to assemble their offers to sell 50.4 million shares in Goodman, a real estate developer, according to two people familiar with the process.
Citigroup counts CIC, China’s $1.3 trillion sovereign wealth fund, as a key client, one of the people said. CIC owned 149.9 million Goodman shares before the latest block sale, data compiled by Bloomberg show.
The bank agreed to buy the stock at a fully underwritten floor price of A$37.55 a share — about A$1.9 billion for the entire block — but was unable to fetch that price from investors.
Trading Losses
Citigroup sold about 22.6 million Goodman shares at A$35.35 each early Friday, after getting just A$36.40 each for 23.4 million shares earlier in the week. About four million shares of the block are unaccounted for. Goodman shares closed at A$36.57 in Sydney on Friday, and have jumped 45% this year.
A spokesperson for Citigroup declined to comment.
The loss represents a big hit to the firm’s Australian business at a crucial time of the year, with just three weeks of 2024 remaining. In a fiercely competitive part of the Asia-Pacific, global banks such as UBS Group AG and Goldman Sachs Group Inc. battle with strong domestic players like Barrenjoey in a market that’s generated more than $2.1 billion in fees in the first 11 months of this year, according to data compiled by the London Stock Exchange Group.
Equity capital markets underwriting in Australia earned banks nearly $500 million in the first 11 months, accounting for more than 23% of total investment-banking fees, according to London Stock Exchange Group data. Citigroup has made $54.4 million in fees, of which about $15 million came from equity, the data show.
Winning the sale mandate vaulted Citigroup from 12th place in the third quarter to first this week, with a market share of almost 14%, according to data compiled by Bloomberg on equity and rights offerings in Australia and New Zealand. That ranking of more than 60 firms has been exclusively led annually by either Goldman Sachs or UBS over the past decade, the data show.
Still, it’s not unusual for banks to get saddled with losses on such trades. Goldman Sachs, for instance, was stuck with falling Burberry Group Plc shares that the firm purchased in a block trade in 2018 in order to help billionaire Albert Frere’s Groupe Bruxelles Lambert SA sell its stake in the luxury brand. The stock fell on the news, leaving Goldman holding shares at a paper loss, Bloomberg reported at the time.
But Goldman held onto the shares - rather than selling them and crystallizing the losses as Citigroup has done with Goodman. In Goldman’s case, the deal ended up becoming one of the bank’s most profitable trades that year when it made about $30 million from selling its holding a few weeks later after the shares had risen again.
--With assistance from Jenny Surane.
(Updates with context on trading loss from first paragraph)
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