Shares of Citigroup jumped more than 50 percent to $5.80 before the bell as investors welcomed the rescue of the No. 2 U.S. bank, whose shares last week plunged to their lowest levels in about 15 years amid a crisis of confidence. It was the biggest bank bailout yet and a measure of the crisis sweeping the world. Analysts said the Citigroup deal with the government should help relieve some of the anxiety surrounding the financial giant that has battered stock markets and drove the SP500 index to an 11-year low last week.
However, risk aversion is still a threat for markets and investors, which shows that the new rescue plan that FED presented to Citigroup, might not be enough relief to avoid the current crisis. Alongside, a study from Deloitte Financial Advisory Services LLP DLTE.UL showed that fraud incidents were much more likely to land a company in bankruptcy court. Bankrupt companies are three times more likely to have been cited for fraud by U.S. regulators, according to the study released on Monday.
Fraud-linked bankruptcies like Enron, WorldCom and Adelphia have kept U.S. courts busy for years, and the study revealed that companies that are cited for financial-statement fraud were twice as likely to file for bankruptcy as those that were not cited.
It was not clear whether employees at bankrupt companies are more likely to commit fraud or whether the microscope of bankruptcy makes it easier for regulators to detect it. The most common type of fraud detected at both bankrupt and nonbankrupt companies was improper revenue recognition.
The study tracked companies with annual revenues of more than $100 million, comparing 519 bankrupt companies to a group of 2,919 non-bankrupt companies from about 2000 through 2007. About 9 percent of the bankrupt companies were the subject of enforcement actions reported by the U.S. Securities and Exchange Commission, compared with 3 percent of the nonbankrupt companies.
