Citigroup says it classified certain repos as sales

* Unintentionally classified $9.2 bln of repo as sales

* Most repo deals were done at U.K. and Japanese units

* Says misclassification does not have any material impact

* $9.2 bln amounts to less than half a pct of total assets

July 16 (BestGrowthStock) – Citigroup Inc (C.N: ) said in a letter to
the U.S. securities regulator it had unintentionally classified
as much as $9.2 billion of repurchase agreements as sales at
one point, when they should have been shown as borrowings.

In its letter dated April 13 to the U.S. Securities and
Exchange Commission (SEC), which was made public on Thursday,
Citi said the third quarter of 2009 had the largest amount of
repurchase agreements accounted for as sales.

Repurchase agreements or repos are a form of financing that
allows a borrower to opt for cash loans upon submitting the
requisite financial securities as a collateral to the lender.
The borrower would then buy back the collateral from the lender
at a later date to close out the loan.

Classifying repo transactions as a sale instead of showing
it as borrowings would mask the true leverage position of a
company as the assets would be removed from the balance sheet.

The repo controversy was brought into focus when a U.S.
court appointed examiner charged bankrupt investment bank
Lehman Brothers Holdings Inc (LEHMQ.PK: ) for classifying certain
repo transactions as sales.

This move by Lehman removed some $50 billion in assets from
its balance sheet in 2008 presenting a stronger financial
picture than existed, according to the examiner’s report.
[ID:nN20112301]

The SEC said in March it had made inquiries of about two
dozen financial firms to determine whether their repo
activities over the past few years had been similar to those of
Lehman.

Citigroup said the repo agreements qualifying for sales
accounting were primarily done its Japanese and U.K.
broker-dealers unit. Citibank in North America accounted for
fewer transactions.

“The amount of repurchase agreements accounted for as sales
by the U.K. broker-dealers during 2007 to 2009 did not exceed
$9.2 billion at any quarter-end date,” Citi said.

The amount accounted for less than half a percent of
Citigroup’s total assets, according to the bank.

“We believe a process defect may have arisen during the
automation of internal Citi margining systems and the
restructuring of our operations department resulting in Citi’s
unintentionally collecting variation margin on certain of these
transactions,” it said.

Citi said the repurchase agreements and securities lending
transactions accounted for as sales were not material to its
financial condition.

Also, the practice did not alter its results of operations,
revenue or liquidity, the bank said in its letter. (Reporting
by Sakthi Prasad in Bangalore; Editing by Valerie Lee)

Citigroup says it classified certain repos as sales