Dec. 16 (Bloomberg) -- Citigroup Inc., the third-biggest U.S. bank, will be ordered by regulators to suspend some operations in Japan after a probe revealed compliance violations, according to two people familiar with the matter.
Part of the New York-based bank’s retail business will be suspended for 30 days by the Japanese Financial Services Agency, said one of the people, who asked not to be named because the matter isn’t yet public. Citigroup’s trading unit will be suspended from selling products tied to interest rates for 10 days and its head, Brian McCappin, may resign, the person said.
Citigroup Chief Executive Officer Vikram Pandit is trying to restore the bank’s reputation in Japan. Regulators punished the company twice in seven years after finding fault with its private-banking operation and a lack of internal controls.
The trading unit will be banned from selling certain products in Japan tied to the London and Tokyo interbank offered rates, or Libor and Tibor, the person said. These are rates at which banks are willing to lend money to each other. Citigroup employees tried to improperly influence Tibor to the firm’s advantage, two people familiar with the matter said earlier this month.
Shannon Bell, a spokeswoman for Citigroup in New York, declined to comment. The suspensions will take effect in January, the person said.
McCappin may resign within the next six weeks as a result of the probe, the person said. He didn’t respond to phone calls and e-mails seeking comment.
Citigroup’s retail operation will be suspended from marketing some of its products, including those tied to mutual funds, the person said. The FSA had been preparing to penalize the bank for failing to fully explain product risk to retail customers, two people with knowledge of the situation said earlier this month.
Darren Buckley, CEO of the retail unit, may step down as soon as this month to take responsibility for the breach, the people said on condition of anonymity.
Citigroup has had a presence in Japan since opening a branch in Yokohama in 1902, according to its website. The bank has 32 branches and offices in Japan with 1,790 employees. The Citicorp division, which includes retail banking, had $2.9 billion in consumer loans in Japan as of Sept. 30, Pandit said in a presentation earlier this month.
In 2009, the FSA ordered Citigroup to suspend marketing of banking services to individuals for a month after failing to install adequate internal controls to detect and monitor suspicious transactions. In 2004, the regulator told the company to close its private banking operations in the country.
The planned suspensions were reported earlier by the Nikkei newspaper.
--With assistance from Takahiko Hyuga in Tokyo. Editors: Dan Reichl, James Gunsalus
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