Fleecers and the Fleeced: Citigroup, Wachovia, Fifth Third

Mirror mirror on the wall, how can a bank can make easy money for all? Step forward Citigroup and its stalwart Falcon hedge fund.

Banks take out life insurance policies on its employees. When the employee dies, the bank collects–tax free. BOLI accounts, they are called (Bank Owed Life Insurance).

And how does this little gimmick generate cash? Hedge fund operators, using the hedge fund as the support vehicle, garner, I am sure, very nice bonuses. The banks, of course, now have a tax dodge.


…many banks have grown aggressive with their BOLI programs, putting premiums into investment vehicles that let the banks record quarterly profits — or losses.

Smiles and high fives all around, I am sure.

Of course, when Falcon stumbled, so did the banks, Wachovia and Fifth Third among them.

Falcon began stumbling last … autumn and by March 31 was valued at 20 per cent of the original value, according to Citigroup documents.

Fifth Third, which reaped $US238 million in gains on its BOLI portfolio in a three-year period, suffered a BOLI-related loss of $US177 million in the fourth quarter and $US152 million loss in 2008’s first quarter.

At Wachovia, Falcon’s woes caused the bank’s first-quarter loss to widen to $US708 million from its previously announced $US393 million loss.

In its lawsuit, Fifth Third alleges that Transamerica Life Insurance and Clark Consulting, both units of Dutch insurer Aegon, “utterly failed to properly manage and monitor” premiums that were invested in Falcon. Citigroup is not named as a defendant. A Fifth Third spokeswoman declined to comment.

We live, apparently, in a financial sewer, with rats and other vermin looking for tasty meals. Occasionally, they gnaw on one another. Yet we celebrate the massive bonuses that all this innovation brings. Money is being made. This is what a bank does.

I remember that marvelous Smith Barney ad: “We make money the old-fashion way: We earn it.” Smith Barney is, of course, “the global private wealth management unit of Citigroup.” In an age of gloss and glamour, the moral compass spins wildly.

Personally, I would not trust these rascals with my grandchildren’s piggy banks. I think it is time to flush the sewers and start fresh. It is time to pull the plug on these financial geniuses and the climate of greed that has spawned them.