Citigroup is freezing out hedge funds who refuse to return Revlon money by ignoring their Bloomberg chats and depriving them access to CLO loans


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Citigroup is playing hard ball.

The bank is locked in a battle with a dozen hedge funds and investment firms who have refused to return the money the bank mistakenly sent on behalf of cosmetics firm Revlon last month.

While much of that fighting is playing out in the courts, the bank is also making sure to press its advantage in the rough and tumble world of trading. 

Managers at the bank have instructed sales and trading staff to essentially freeze out the funds from services they rely on to make investment decisions and bundle new bonds, according to three people with knowledge of the policies. 

Employees have been told to stop sending pricing information on bonds — known on Wall Street as ‘runs’ — and remove those clients from any distribution lists they may have been on, according to one of the people. In some cases, salespeople and traders are ignoring Bloomberg chat messages or refusing to return calls from those clients, the person said, describing it as a directive. 

Desk research, pricing data, and other market-based color can often translate into the edge funds need in the hand-to-hand combat of distressed debt trading. 

In other cases, the bank has threatened to withhold access to new loans that some of the funds need to bundle into new collateralized loan obligations, starving them of the supply they need to sell new debt and collect lucrative fees, according to a second person. 

One person familiar with the bank’s response said it was less a matter of pressing its advantage, and more about a realization that it didn’t share the same attitudes with the funds about what is right and wrong, making it difficult to do business with them going forward.

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The bank’s credit trading business, which includes the distressed debt trading desk and securitized product groups that many of those funds trade with, is run by Mickey Bhatia and Joe Geraci.

Read more: The real reasons behind Citigroup CEO Mike Corbat’s retirement

Brigade Capital Management, HPS Investment Partners, and Symphony Asset Management LLC are among the largest and well known funds fighting with Citigroup, according to court documents which identify the three as among those who haven’t returned the money.

Citigroup says Brigade has $176 million in money that the bank sent to various funds and entities related to the fund. Citigroup declined to comment on the sales and trading directives, and fund representatives declined to comment. 

Brigade has said that it isn’t a lender to Revlon and doesn’t have the money. A spokesperson for the fund told The Wall Street Journal earlier this month that the fund “has not sought to limit any other business or trading activity with Citibank as a consequence of this specific disagreement.” 

Citi’s issues stem from an erroneous $900 million wire

Citigroup’s tactics are the latest salvo in a skirmish that broke out after human error led the bank on Aug. 11 to mistakenly send $893 million in principal payments to a group of creditors to Revlon, the beleaguered cosmetics company.

Citigroup acts …read more

Source:: Business Insider


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