Tuesday, July 19, 2005

Citibank Suspected of Illicit Interest Gains

By Kim Yon-se
Staff Reporter

Citibank Korea has been suspected of having reaped about 12 billion won ($12.4 million) in illegal gains involving its mortgage loan businesses over the past few years.

The suspicion has surfaced after the labor union at KorAm Bank, acquired by Citigroup last year, on Tuesday filed a complaint against Citibank Korea and its vice president, Richard Jackson, with the prosecution.

The union alleges that the bank booked the irregular gains by charging fixed interest rates on mortgage loans it sold though the interest rate on the loans should have floated according to market rates under initial contracts during 2002 and 2005.

During the period, floating rates hovered below the initial lending rate of 7.9 percent due to a series of rate cuts by the Bank of Korea (BOK). But the bank maintained the fixed rate on mortgage loans in the breach of contracts with its clients, the union said.

``Considering that the average loan rate offered by other banks stood at around 6.5 percent over the period, it is estimated that Citibank enjoyed 12 billion won in illegal gains,’’ a union official said.

He said the bank lowered the lending rate for only customers who had complained about the fixed interest rates.

``Citi continued to charge the initial rate of 7.9 percent on borrowers who filed no complaint,’’ the union official said.

The number of customers of the Citi’s mortgage loan product was about 30,000 at the end of 2002 and 13,000 at the end of February 2005.

The union said vice president Richard Jackson, an Englishman who has been in charge of consumer lending since before the merger between KorAm and Citibank, is allegedly responsible for the fraudulent loan practices.

Jackson, who joined the Citibank in 1985, has been in charge of the consumer businesses even after the bank’s acquisition of KorAm Bank in 2004.

Citibank Korea cut the interest rate on the product by 1 percentage point to 6.9 percent in April 2005 as financial regulators intervened in the case, according to the union.

In its official letter to Citibank in March 2005, the Financial Supervisory Service (FSS) ordered the bank to correct the improper lending practices.

The FSS also said Citibank Korea violated the basic principle of equality by lowering rates for only borrowers who filed complaints.

Meanwhile, the FSS and the U.S. Federal Reserve have recently launched a joint probe into Citibank Korea. It is the first time that foreign financial firms here have been investigated by regulators from their own countries.

The Korean and U.S. regulators are keeping the purpose of the probe confidential, while financial sources allege the action has been motivated by U.S.-based Citigroup’s series of illegal business activities worldwide.

Citigroup has been penalized for a variety of rule-breach, such as unfair bond trading in Europe, illegal private banking in Japan, illegal stock issuance in China and involvement in Enron’s accounting scandal in the U.S.

As the global investment bank continued to push for mergers and acquisitions (M&As) despite the illicit practices at branches all over the world, the Federal Reserve Board ordered the bank in March 2005 to hold back the M&A business.

``We believe the union’s case is without merit. Our pricing was both responsible and in line with market conditions at the time. It is also consistent with our agreements with our customers,’’ Citibank Korea said in a statement.

``We aim to provide the best competitive financial products and services in the Korean market. For example, we offer one of the highest rates of interest for time deposits, currently at 3.85 percent,’’ it added.

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At 1:18 PM, Blogger Roberto Iza Valdés said...

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