THE five Citigroup traders at the centre of the “Dr Evil” bond trading affair will be back at their desks within days after the bank agreed to pay £14 million in penalties to settle the scandal yesterday.

The Financial Services Authority yesterday fined the bank for failing to conduct its business with due skill, care and diligence, and failing to exercise proper controls over the London bond trading team.

The fine is the biggest imposed on an FSA-regulated firm and second only to the £17 million penalty meted out to Shell last year for repeatedly misleading its shareholders over oil and gas reserves.

But it is a pinprick to Citigroup, the world’s biggest bank, which makes that much in after-tax profit every 13 hours.

The FSA stopped short of finding Citigroup guilty of the much more serious offence of market manipulation and made no findings against any individuals. Citigroup had failed to achieve the high standards expected from a bank of its size, the FSA said. It had also failed to put adequate risk management systems in place. The regulator described the failings as “very serious”.

The traders have been suspended on full pay since the affair last August. A bank spokeswoman said they would return to their jobs on the same terms within the next few days.

Last August Citigroup sent shockwaves through the eurobond market after executing a series of huge bond trades, which destabilised the market and for a moment sent prices plunging. By exploiting the price moves and the ensuing panic, Citigroup traders made profits of £9.96 million in the course of the day. The bank’s reconfigured computer program, designed to stun the market with a blast of 188 simultaneous sell orders, was known by the traders as “Dr Evil”.

The FSA said the overall penalty comprised the confiscation of those £9.96 million profits plus a £4 million fine. That £4 million exactly matches the biggest FSA penalty to an authorised firm, imposed on Credit Suisse First Boston in 2002 for misleading the Japanese regulators.

The proceeds would mean that investment banks this year would pay a slightly smaller FSA levy than otherwise. Nothing would be paid to the counterparties to Citigroup’s trades.

Citigroup yesterday declined to apologise to those counterparties. But it expressed regret that the trades took place because they did not meet Citigroup’s high standards and damaged its reputation.

It seized on the FSA’s admission that Citigroup “did not deliberately set out to disrupt the efficient and orderly operation” of the bond markets. It also said it had improved management controls and training.

The size of the overall fine surprised many observers, who had expected a bigger penalty even than the Shell fine. Regulation specialist Robert Turner, of Simmons & Simmons, said: “By UK and European standards, it’s a chunky fine, but less than many had been expecting.”

The Dr Evil program enabled Citigroup to execute a market-moving 188 sell orders in the space of 18 seconds. The resulting market panic was even greater because the trading team did not immediately receive confirmation that their trades had gone though, so they sold some more. In total €12.9 billion (£8.6 billion) worth of bonds were sold.

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