A team of Citigroup Inc. derivatives traders generated about $300 million of revenue this year, thriving from serving companies and investors trying to anticipate central bank decisions, according to people with direct knowledge of the matter.

The windfall was produced by the bank's U.S. dollar interest-rate swaps desk led by Geoff Weber in New York, according to the people, who asked not to be identified because the firm doesn't break out results for such businesses. The group includes Dan Leadbetter, Daniel Gottlander and Mark Zaguskin, one person said.

The team's performance demonstrates that traders can still make outsize profits even after regulators sought to curb risk-taking in the wake of the financial crisis. Another example: Goldman Sachs Group Inc. trader Thomas Malafronte earned more than $100 million by scooping up cheap junk debt early this year.

The Volcker Rule, named for former Federal Reserve Chairman Paul Volcker, seeks to make the financial system safer by barring banks with federally insured deposits from betting their own money. Such wagers once drove epic profits — and bonuses — in the years before the crisis.

Now traders are largely relegated to the business of helping customers buy and sell securities, profiting on the spread and movement in prices. But the line between that business and speculating on prices by holding positions for days or weeks can be blurry.

Malafronte bought high-yield bonds from clients eager to sell and later found other buyers, according to a person with knowledge of the matter. The Wall Street Journal reported on his performance last week.

A Citigroup spokesman, Scott Helfman, declined to specify Weber's gains.

“Over the last several years we have been investing in our North American rates business to better serve our customers, and we are now seeing positive results,” Helfman said.

Some of Weber's success stems from volume, as the bank's global footprint gives it a presence in dozens of countries and visibility with thousands of clients. The bank has also invested in technology, enabling it to handle a large number of transactions in a short amount of time, the people said. Wall Street trading desks are turning to scale to generate revenue by processing more and more transactions with smaller profit margins.

'Good Person'

Citigroup hired Weber from UBS Group AG in 2012, and in January expanded his responsibilities to include both Treasuries and dollar-swaps trading.

“Given the regulatory backdrop, he's a good person to have in that seat,” said Nick Brophy, the former head of U.S interest-rate trading who brought Weber to Citigroup. “He is a classic market maker, anxious to see trades and make markets. And clients like that. So it wouldn't surprise me if they were picking up market share.”

Citigroup's broader U.S. interest-rate business, overseen by Deirdre Dunn, ranked second in the U.S. in a 2016 survey by Greenwich Associates. Her operations — which also handle Treasuries, bonds backed by government agencies and options — generated more than $800 million of revenue this year, according to one of the people. Weber is among the traders and salesmen in Dunn's division.

Since the financial crisis, most interest-rate swaps are required to be traded on so-called swap-execution facilities and then backed by a clearinghouse. The platforms allow derivatives to be traded electronically with the hope of increasing price transparency. Most of the trading is done in an auction, and investors are increasingly favoring banks or other market-makers that don't change the price during the time it takes to execute the trade. Ensuring they are processed without mistakes is also vital.

Citigroup's trading volumes got a boost in the third quarter as investors adjusted portfolios around Fed officials' differing public pronouncements about the outlook for interest rates, Chief Financial Officer John Gerspach said Oct. 14, when the company announced third-quarter profit that beat analysts' estimates. The stock has climbed 3% since then, paring the year's decline by half.

Weber's team also has been minting revenue tied to the bank's handling of corporate bond deals by working with clients issuing the debt, according to the people. In such cases, companies typically sell debt to investors with a fixed interest rate, then enter a contract with the bank to pay a variable rate.

While Citigroup has held its No. 3 rank among U.S. investment-grade bond underwriters this year, it has been tightening the gap with industry leaders JPMorgan Chase & Co. and Bank of America Corp., according to data compiled by Bloomberg. Citigroup increased its share of that market to 10.2% this year through Wednesday, up from 9.9% last year. Top-ranked JPMorgan's share slid to 12% from 13.5%.

Revenue at Citigroup's broader fixed-income trading business increased 10% in the first nine months of this year, helped by a 35% jump in the third quarter. It rose 19% at JPMorgan this year through September and slipped about 6% at Goldman Sachs.

Citigroup's revenue from interest-rate and currency trading increased more than 30% in the third quarter from a year earlier, with “particular” strength in G-10 rates, Gerspach said. That reflected “strong client activity and a more favorable environment,” he said.

Bloomberg News

Instant Insights /

Citi Trading Desk Said to Reap $300 Million on Rate Swaps

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