June 27 (Bloomberg) -- The Citigroup Inc. team that invests in distressed corporate bonds and loans is being broken up as its leaders leave to start a hedge fund later this year, according to a person familiar with the matter.
Jeff Jacob and John Humphrey, who set up the bank's global special situations group in 2004, will depart in about two months with six or seven members of their team, said the person, who declined to be identified because the plans aren't public yet. The group's assets, which amount to several billion dollars, will remain at Citigroup, where some will be placed in a customer- trading group's inventory and some will go into a new principal- investing division, the person said.
``We have decided to restructure our Global Special Situations Group in order to maximize the significant opportunities in the global distressed sector,'' said Danielle Romero-Apsilos, a spokeswoman at Citigroup in New York. She declined to elaborate on the team's plans or to say how much if any capital the bank might invest in the fund.
Citigroup has taken $43 billion in writedowns and losses from the collapse of the U.S. mortgage market, more than any other bank. Its shares have tumbled more than 40 percent in New York Stock Exchange composite trading this year amid fears the bank will post more losses as it writes down the value of debt securities it owns. The stock fell to its lowest level since 1998 yesterday after Goldman Sachs Group Inc. analyst William Tanona said the bank may reduce the value of its assets by $8.9 billion.
Performance Issue
The global special situations group invested in corporate bonds and loans, not in mortgage or structured credit, the person said. Joshua Rosner, a managing director at Graham Fisher & Co., said the departure of Jacob and Humphrey raises questions about how their assets had been performing.
``If the performance was great, given all the problems that Citi's been having you'd think it would be in the best interest of Citi to keep them,'' Rosner said.
Jacob and Humphrey are starting their new fund because they see an opportunity in the market and have been approached by potential investors about starting a new business, said the person familiar with their plans.
Thomas Gahan, who ran Deutsche Bank AG's global capital markets division, said in March that was leaving to start his own investment firm, citing a ``huge opportunity across the credit spectrum.'' David Sherr, who oversaw Lehman Brothers Holdings Inc.'s securitization group, started his own hedge fund in March, and Rick Rieder, who managed a proprietary-trading fund at Lehman, brought about $5 billion of Lehman assets with him to a new hedge fund called R3 Capital Partners earlier this month.
Some members of Citigroup's global special situations group will join the customer-focused distressed sales and trading business led by Carl Meyer, while others will join a private investment business run by John Peruzzi, the person said. Both Meyer and Peruzzi will report to Carey Lathrop, who runs global credit trading, the person said. All are based in New York.
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.
Last Updated: June 27, 2008 12:33 EDT
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