Citigroup (C) Props Up Trading Unit In Face of Volcker Rule

Citigroup Inc. (NYSE: C) is bolstering trading limits and capital for it proprietary trading unit, even as the government's proposed ban pushed eight of its 22 employees to defect, according to a report from Bloomberg citing people familiar with the matter.

The banking giant plans to replace six of the portfolio managers that left the unit since the head of the group, Matt Carpenter quit in February.

Citigroup wants to keep the unit growing, as it produces nearly $100 million in annual revenue, even in the face of the proposed Volcker Rule ban on proprietary trading from President Barack Obama.

Vikram Pandit, CEO of Citigroup, told a bailout oversight panel this month that the banks should not speculate in the markets with their own money, which put pressure on the unit’s employees, causing the defections.

“Proprietary trading is not a big part of our business at all,” Pandit said.

The so-called long-short equity unit of Citigroup handles more than $1 billion in assets, attempting to hedge against economic and stock market risks with bearish stock bets against bearish holdings in the same industries, according to the sources cited by Bloomberg.

"Proprietary trading represents an extremely small fraction of our revenue and even smaller commitment of capital," Citigroup spokesman said, adding that any increase in capital for the unit will be paid for with reductions in other areas.

"In many cases, we use learning from our proprietary trading activity to create and test new strategies for clients," Cohen added.