“The complaint is based largely on the ongoing class action lawsuit against Citigroup.”
Citigroup misrepresented its financial condition and failed to disclose material information, leading Norges Bank to buy Citigroup stock and bonds at inflated prices between January 2007 and January 2009, the Norwegian central bank says in the lawsuit filed at the US District Court in Manhattan.
“Citi’s near-demise had its genesis in the company’s increasing willingness to take on risk for the sake of profit, without regard for – and without disclosing – the magnitude of the downside exposure it faced if those risks materialized,” the central bank writes in the complaint, labeled “Norges Bank v. Citigroup; 10-cv-07202”.
The Pension Fund (Again)
Through its investment arm, the Norwegian Government Pension Fund Global (NBIM), the world’s second-biggest sovereign wealth fund, posted a record 633 billion kroner ($107.6 billion) loss in 2008, wiping out gains since the fund started investing the country’s oil revenue in 1996.
The so-called oil fund had a 26 percent return last year.
The central bank’s lawsuit names 20 of Citigroup’s current and former directors and executives, including former CEO Charles “Chuck” Prince.
The Norwegian Pension Fund is about to become famous for its controversial investment strategy – being one of the largest shareholders in the ruined oil company BP, and have lately invested large sums in Greek bonds.
Best Served In Court
– We confirm that Norges Bank has filed an individual claim against Citigroup in federal court in New York. The complaint is based largely on the ongoing class action lawsuit against Citigroup,” Bunny Nooryani, communications manger at NBIM says, according to the website DN.no.
The Norwegian central bank also confirms the size of the loss.
“Norges Bank’s complaint tracks, in large part, the complaint filed in the securities class action lawsuit currently pending against Citigroup, but Norges Bank believes it will be better served by pursuing its own direct action,” she says in a telephone interview with Bloomberg.
The central bank is also a plaintiff in the class-action lawsuit, Ms. Nooryani adds.
The lawsuit adds to a group of other pending complaints against Citigroup for losses suffered by investors.
The New York-based bank, today the fourth-largest U.S. bank by deposits, announced “significant declines” in its $55 billion of subprime holdings on November 4th, 2007, and reported a $9.8 billion loss for the last quarter of 2007, compared with a $5.1 billion net profit the previous year.
The bank had a net loss of $27.7 billion in 2008 and received a $45 billion bailout from US taxpayers.
The Securities and Exchange Commission sued Citigroup in a separate case in July, claiming that the bank, now 18 percent- owned by U.S. taxpayers, had misled investors by not disclosing over $40 billion in subprime-related holdings during 2007.
Citigroup agreed to a $75 million fine in a settlement that was approved by a federal judge Friday.
Four Small Towns Went Bankrupt
In the aftermath of the US subprime crises, four small Norwegian towns practically went bankrupt after investing in subprime-related financial instruments issued by Citygroup.
The local administrations in these Norwegian small town have already tried to sue Citygroup over their losses, but have gotten nowhere, and are now a part of the ongoing class action suit against the global giant.
“We believe the suit has no merit and will defend ourselves vigorously,” Citigroup spokeswoman Danielle Romero- Apsilos says in a statement.
“We believe that such lawsuits are baseless and will defend ourselves intensely,” Citigroup spokesman Jeffrey French writes in an email to DN.no.
Citigroup executives repeatedly stated in conferences calls in 2007 that the bank had reduced its subprime exposure by 45 percent to $13 billion.
The figure omitted “super-senior” tranches of collateralized debt obligations and financial guarantees called liquidity puts that added more than $40 billion in subprime exposure, according to the SEC’s complaint.
Crittenden is named as a defendant in Norges Bank’s lawsuit.
Citigroup’s shares fell 93 percent over the period during which the Norwegian central bank claimed the bank made its misleading disclosures, closing at $3.83 on Jan. 15, 2009, compared with $54.50 two years previously.
Citigroup’s 5.85 percent bonds sold in August 2006 and maturing 10 years later lost 0.8 percent during that period.
The Norwegian spokeswoman, Bunny Nooryani, declined to give further details on the amount sought in compensation or why the bank believes it will be better served pursuing its own lawsuit.
Related by the Econotwist:
- Citi sued by Norwegian central bank (ftalphaville.ft.com)
- Citi Sued By Norway’s Central Bank (observer.com)
- Citigroup Settlement on Subprime Holdings Disclosures Approved (businessweek.com)
- Judge Ready to Approve $75M Citigroup Settlement (nytimes.com)