Citigroup Is Urged to Delay Takeovers

Citigroup Inc. has been urged by the Federal Reserve to delay any takeovers until the company tightens “compliance and internal controls” after running afoul of regulators.

Citigroup’s earnings fell last year as the bank set aside $4.95 billion to pay legal expenses for claims that it helped WorldCom Inc. and other companies defraud investors.

The New York-based lender now faces allegations it roiled European government debt markets with a barrage of bond trades in August.

In September, Citigroup had its private-banking license stripped in Japan, resulting in $244 million of costs.

The Federal Reserve Board of Governors said it expected Citigroup executives to clean up business practices before they pursued more purchases.

It’s important that “attention not be diverted from these efforts by the demands that mergers and acquisitions place on management resources,” the Fed Board wrote in an order this week approving Citigroup’s purchase of Texas-based First American Bank.

Citigroup has spent more than $50 billion on acquisitions since 2000, creating an institution with $1.4 trillion in assets and operations in about 100 countries.

Chief Executive Charles Prince, who succeeded Sanford I. Weill in October 2003, has said Citigroup will eschew large deals for smaller purchases that extend the bank’s reach.

“Citi is being singled out,” said Roy Smith, a finance professor at New York University. “They are questioning whether Citigroup is in control of the full extent of their businesses and are saying, ‘You cannot get any bigger until you convince us that you are in control.’ ”

Citigroup fell 13 cents to $47.24 on the New York Stock Exchange.