When Citigroup bankers Paul Darwell and Andrew Manchee took a cigarette break outside the bank's Sydney headquarters in August last year, they could not have foreseen the consequences of their quiet chat.
In an allegedly cryptic exchange of just a few sentences, the two men set in motion a series of events which, eight months later, has ensnared Citigroup in another trading scandal that could challenge the integrated investment banking model used by all major banks.
Citigroup can do without another clash with regulators on compliance. Under chief executive Charles Price, the United States giant was just starting to move on from the embarrassment of losing its Japanese private banking licence in 2004, being exposed for destabilising European bond markets, and paying out more than US$4 billion in two class-action suits brought by disgruntled investors in Worldcom and Enron Corp.
And just as US regulators have lifted the ban on the group making major acquisitions, it now finds itself in the crosshairs of the Australian Securities and Investments Commission (ASIC).
In essence, the case revolves around the conversation between the two Citigroup bankers. Darwell, the head of equity derivatives, advised Manchee, a proprietary equities trader, that he should stop buying shares in stevedoring and logistics group Patrick Corp because it was to the disadvantage of one of the clients of the bank's advisory business.
Manchee had bought around one million Patrick shares that Friday after the stock price dipped after a profit warning.
