- Citigroup has taken steps to exclude a group of hedge funds and investment managers from its sales and trading operations after the funds refused to return money the bank mistakenly sent to a group of creditors at the beleaguered cosmetics company Revlon.
- Citi sales and commerce managers have instructed employees to remove funds from distribution lists, stop sending price runs, and in some cases ignore their Bloomberg chat or phone messages, the knowledgeable people said.
- In other cases, Citigroup has threatened to deny some managers access to new loans they need to secure secured loan obligations, one respondent said.
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Citigroup plays hard ball.
The bank is in a battle with a dozen hedge funds and investment firms who have refused to return the money the bank mistakenly sent on behalf of cosmetics company Revlon last month.
While much of these battles take place in court, the bank also makes sure it takes its advantage in the harsh world of trading.
The bank's managers have directed sales and trading staff to essentially freeze funds from services they rely on in order to make investment decisions and pool new bonds, according to three people with knowledge of the guidelines.
Employees were told to stop sending pricing information about bonds – – known on Wall Street as "Runs" – and remove those clients from any distribution lists they might have been on, according to one of the people. In some cases, sellers and merchants ignore Bloomberg chat messages or refuse to return calls from these customers, the person said, describing this as a guideline.
Desk research, pricing data, and other market-based colors can often create a need for marginal funds in the hand-to-hand battle against distressed debt trading.
In other cases, the bank has threatened to deny access to new loans, which must pool some of the funds into new secured loan commitments to deprive them of the supply they need to sell new debt and collect lucrative fees , such a second person.
One person familiar with the bank's response said it was less about expressing their benefit than about recognizing that they don't share the same attitudes with the funds about right and wrong, which makes it difficult doing business with them go forward.
The bank's credit trading business, which includes the distressed debt trading desk and securitized product lines that many of these funds trade in, is run by Mickey Bhatia and Joe Geraci.
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Brigade Capital Management, HPS Investment Partners and Symphony Asset Management LLC are among the largest and most well-known funds struggling with Citigroup, according to court documents identifying the three as the ones that didn't return the money.
According to Citigroup, Brigade has $ 176 million in cash that the bank has transferred to various funds and companies related to the fund. Citigroup declined to comment on the sales and trading guidelines and the Funds representatives declined to comment.
Brigade said it's not a lender for Revlon and doesn't have the money. A spokesman for the fund told the Wall Street Journal earlier this month that the Fund "has not attempted to restrict any other business or trading activity with Citibank as a result of this specific disagreement".
Citi's problems stem from a faulty $ 900 million wire
Citigroup's tactic is the latest volley in a skirmish that erupted after the bank mistakenly sent $ 893 million through human error to a group of creditors in Revlon, the beleaguered cosmetics company, on Aug. 11.
Citigroup acts as the administrative agent for a 2016 Revlon loan. Instead of just sending the interest due, it also sent the principal according to the bank's version of the events filed in court. The funds had asked Citigroup to resign, claiming the bank was helping Revlon with a controversial debt restructuring.
Revlon creditors sued the cosmetics company and fought the proposed restructuring because they said the company mistakenly moved assets that should have been the collateral for their loans.
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When the bank went to get their money back, the counterparties only returned about half of it.
The remainder were held by a few investment firms, including Brigade, HPS, Symphony, and at least nine others, according to court records. They argue that the money is rightfully theirs. Citigroup went to court and froze the money, embedding the two sides in a far-reaching legal battle.
"While many lenders have recognized the payment was in error and have returned hundreds of millions of dollars so far, other lenders have either refused to return or made no commitment to return the funds," a Citigroup spokeswoman said in a statement. "These funds have been frozen by court order. We believe the law is on our side and that we will get the outstanding funds back."
Internally, according to one of the people, the bank declared the error as the work of a junior employee. She did so in a legal document she filed in support of her case against the funds in the U.S. District Court for the Southern District of New York.
"The person who incorrectly processed the payment did not manually select the correct system options, and unfortunately the manual reviews of those selections did not detect the error," the bank filing said.
Citigroup's sales and trading tactics are not the first time attempts have been made to exert their influence. In the days following the August 11 transfer, the bank moved away as manager of a Brigade-managed $ 400 million secured loan commitment that was administered by Bloomberg News the day before the pricing reported back then. The decision left the hedge fund looking for another bank to replace Citigroup, according to Newswire.