Morning Coffee: The peculiar elements of Citi's $81trn mistake. Hudson River's heady hiring
Citi is no stranger to expensive errors. In 2021, it accidentally sent Revlon creditors $900m when it really wanted to pay them $7.8m in interest. In 2022, it lost $48m when a trader who intended to sell a basket of shares for $58m accidentally created a basket worth $444bn and accidentally sold some of it. However, the Financial Times reported on Friday that Citi has far surpassed any previous errors with an attempt to credit a client's account with $81trn instead of $280.
As the Wall Street Journal points out, it was a fine thing that Citi's latest erroneous transaction didn't go through: the bank doesn't even have $81trn, which nearly three times the GDP of the United States. Instead, the error of all errors was caught and stopped - but only 90 minutes after the mistake was made.
What went wrong? Two Citi employees messed up, and the Citi system had some strange foibles.
Starting with the foibles, the FT notes that a Citi back-up system was being used because the bank's sanctions-checking software was blocking a standard payment. This system had a quirk: the screen came pre-populated with 15 zeroes. The payments processing employee, who was possibly in India, was told by the bank's technology team supposed to delete these zeroes, but didn't.
Then there seems to have been a problem with exchange rate conversions. Somehow or other $280 became $15 trillion, and it's not clear how. The payments processing human was supposed to have made the conversion from dollars to Brazilian reais, which would imply a payment of 1,650 reais at today's exchange rate. Somehow, that didn't happen either.
After these initial mistakes, a second Citi employee was supposed to check the transaction was as expected. They did. They gave it the go-ahead.
It was only a watchful third Citi employee who noticed that the bank was attempting to casually wipe itself and who stopped the transaction from happening, an hour and half into the process. In a statement, Citi says its controls worked: “Despite the fact that a payment of this size could not actually have been executed, our detective controls promptly identified the inputting error between two Citi ledger accounts, and we reversed the entry. Our preventative controls would have also stopped any funds leaving the bank." That's all fine then.
The interaction of Citi's humans with Citi's defective systems has caused problems in the past. In the Revlon case, a quirk of the system meant Citi had to briefly pretend to pay off Revlon's $900m loan when it simply wanted to pay $7.8m creditors in interest. An Indian contractor clicked the two small $900m repayment boxes but forgot to unclick them. A second Citi employee in Delaware checked the transaction and said it was fine. The Indian contractor clicked to proceed, and ignored the automated warning. $900m left Citi's account.
The latest mistake highlights the need for Citi to junk its dysfunctional systems and get some new ones. The bank is attempting this with its $250m+ data transformation effort and semi-wild hiring of data transformation professionals. It's no easy task. Citi was fined $400m for its Revlon error. Last year, it was fined another $136m for failing to fix lax controls and data management. One single regulatory report has 750,000 lines of data, and Citi has 11,000 of them.
Looking on the bright side, Citi says the recent mistake highlights that it's moving in the right direction: "While there was no impact to the bank or our client, the episode underscores our continued efforts to continue eliminating manual processes and automating controls through our Transformation.” Good news then.
Separately, Business Insider notes that electronic trading firm Hudson River has doubled its headcount to 1,110 people in the past four years and that last year it had $8bn of trading revenue. This makes it slightly smaller than Citadel Securities and around half the size of Jane Street.
As it expands, BI says Hudson River is trying new things. Once it was all about high frequency trading. Now, it's about high frequency trading and duration trading through its Prism unit. It has new offices (Austin, Boulder, Shanghai, Mumbai, and Dublin). It covers new asset classes (futures, fixed-income, currencies, options, and crypto). It doesn't pay badly, either. Employees in the UK office seem to earn £522k ($657k) each.
Meanwhile...
A total of 10 near misses involving $1bn or more occurred at Citi last year. (Financial Times)
Jonathan Kaye, the Moelis banker who punched a woman at a Pride parade has been granted a conditional disposition on four misdemeanor assault charges and two violations of harassment. Kaye has to do 25 days of community service, attend three anger management sessions, and to pay $50k in restitution. (Daily Mail)
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When he was at Amaranth Advisors, Nicholas Maounis lost investors $6bn in days. Now he's managing $11.8bn at Verition. (WSJ)
Private equity firms are cutting jobs. Charterhouse has seen half a dozen senior figures leave over the past two years. (The Times)
After failing to cut costs at HSBC, Noel Quinn has joined Julius Baer as chairman and will be helping cut costs there instead. (Financial Times)
Junior solicitors on £180k want to work standard days. “We had a trainee who wouldn’t start work before 9.30am and moaned if she had to do anything beyond 5.30pm." (Telegraph)
Ex-Barclays CEO Jes Staley is trying to clear his name after allegations about his involvement with Jeffrey Epstein. “There is a massive reputational issue at the heart of this. With the Upper Tribunal, it’s yet another forum in which these allegations will be aired. But it is fundamentally his right to refer the matter. It’s the first time in which the case will have had any proper judicial scrutiny." (Bloomberg)
“[Staley] has a family, a nice house in the Hamptons, a yacht and more money than god. Let it go.” (Financial Times)
Jobs in Dubai are attracting 2,000 applications but living there is expensive. Rents have doubled since the pandemic. (Bloomberg)
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