The US Treasury recently decided to vote its proportionate ownership interest in Citigroup to affirm reappointment of KPMG as Citi’s auditor for the 41st consecutive year.
Maybe Treasury married KPMG all over again because they’re cheap compared to what Goldman and AIG are paying PwC, for example.
Maybe KPMG knows this client best – a dubious honor. KPMG has been on the scene of Citi’s crimes and misdemeanors all over the world for 41 years.
Maybe Treasury feels like a mother who puts up with a gold digging daughter-in-law because daughter-in-law saw mom kissing the tennis pro and mom knows her son has slept with the baby-sitter…
Does any single stockholder control as much as 5% of any class of Citi’s voting stock?
As of December 31, 2009 (i) the U.S. Treasury continues to hold approximately 7.7 billion shares, or approximately 27%, of Citi’s common stock, (ii) the U.S. Treasury and the Federal Deposit Insurance Corporation (FDIC) continue to hold an aggregate of approximately $5.3 billion of Citi’s trust-preferred securities, and (iii) the U.S. Treasury continues to hold three warrants exercisable for an aggregate of approximately 465.1 million shares of Citi’s common stock.
The US Treasury is Citigroup’s largest common shareholder, owning 7.7 billion shares, or about 27% of the company. Donald Marron at WallStreetPit.com tells us how Treasury voted its shares:
“Treasury announced that it would retain the discretion to vote only on core shareholder issues, including the election of directors; amendments to corporate charters or bylaws; mergers, liquidations and substantial asset sales; and significant common stock issuances. At the time of the exchange, Treasury agreed with Citigroup that it would vote on all other matters proportionately…”
KPMG has served as Citigroup’s auditor since 1969. In my recent post about rampant repurchase risk, I said Citi is now KPMG’s sole toehold on Wall Street.
Fees to KPMG for audit, audit related and tax compliance work at Citi were more or less flat from 2007-2009.
This seems quite odd given the tumultuous times we’ve had the last two years. Auditors are supposed to assess the additional risk of fraud and material misstatement associated with events like a global economic crisis, taking on taxpayers as significant shareholders (November 2008) and the credit chaos in industry and sovereign capital markets.
But KPMG and the US Treasury have almost as much history together as KPMG and Citi.
While the US Treasury, via the IRS, was scaring the living daylights out of KPMG over tax shelter abuses in 2005 and the Department of Justice was considering indicting the firm, KPMG was busily auditing the Department of Justice and the US Mint. In 2007 and 2008 KPMG also audited the Department of Treasury’s Financial Management Service.
KPMG is negotiating with the Department of Justice about its troubles while Department of Justice is negotiating with KPMG, their auditors, regarding their audits of DOJ financial statements… in addition to the “too few to fail” doctrine at work here, there was also an attitude on the part of KPMG of, “Hey DOJ losers, who are you to call us a mismanaged, uncontrolled mess?”
At the last moment, the Department of Justice changed their mind about putting KPMG effectively “out of business” over the tax shelter sins.
Details of the deal were announced at a Gonzales news conference on Aug. 29, 2005. The resolution, Gonzales said, “reflects the reality that the conviction of an organization can affect innocent workers and others associated with the organization, and can even have an impact on the national economy.”
This decision cemented the US government and general global regulatory posture of “too few to fail” with regard to the largest audit firms. What makes you think the US Treasury would ever force its close friend KPMG out of Citi?
This article was originally posted at GoingConcern.com May 5, 2010.