Citigroup Inc. ?, which had taken a $45 billion U.S. bailout after losses on subprime home loans, is boosting profits from a hedge fund that bets the bank?s money on mortgage debt; a practice regulators plan to restrict.
The group?s mortgage/credit opportunity fund rose by 16 percent in the first four months this year, doubling its pace from last year. About 90 percent of the $395 million invested in the fund is the bank?s own capital.
The firm may seek new investors for the vehicle before regulators implement the Volcker rule, which was passed by the Congress last year to force bank holding companies to cease bets with their own money.
?If the Volcker rule gets defined the way it was originally intended to be defined, then they?re probably going to need to divest their interest,? said Charles Whitehead, an associate professor of law at Cornell Law School in New York. ?But why kill the goose before you have to??