Morning Coffee: Citi's internal auditors are its new most important people. Hedge funds love non-compete clauses

Working in internal audit is not the most glamorous job in financial services. It is not a front office job. It does not come with the highest compensation. For example, regulatory filings show that Citi's 487 mostly senior bankers and traders in London were paid an average of $1.5m each for 2025; its seven senior control staff - of whom internal auditors are a part - received an average of only $586k. 

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Despite this, it's Citi's internal auditors who are suddenly abnormally important for its immediate future. As we have written here often, Citi would very much like to be free of the consent orders imposed upon it by the Federal Reserve Board and the Office of the Comptroller of the Currency almost exactly six years ago when it was deemed that Citi's risk management, data management and internal controls were far too weak. The bank has since invested billions and hired tens of thousands of new people to make amends. It says those amends have been made. Reuters says the bank's internal auditors are a hurdle to establishing this.

Reuters reports that these auditors - whose role is to monitor controls and to assure Citi's most senior people that all is functioning as it should be - have been checking the remediation work the bank's presenting to regulators so that regulatory sign off can be 'streamlined' and 'extensive checks' avoided. It's either fortunate or not, then, that Citi's internal auditors reportedly spotted an issue related to data tracing and the origin of data in its aggregated accounts earlier this summer. 

It's not clear whether this issue is delaying the lifting of the consent order, which Citi has been intimating might happen soon for a while now. Even in July, Citi CEO Jane Fraser suggested that the bank was "largely now operating at the Citi target state" and that at least 90% of the work had been done and validated by auditors (either internal or not). 

Citi didn't respond to a request to comment for this article. The bank told Reuters that: "As we have said consistently, we will not speculate about the lifting of the consent orders because that remains solely at our regulators’ discretion," and that,  "The way Citi is run today ​is fundamentally different from where we started our Transformation, and we are committed to ensuring the changes we have been making to strengthen our risk and control environment are sustainable." 

All might become clear later today, when Citi reports its Q3 results. The lifting of the consent order is important because it's a) expensive and b) related to the ongoing employment of various people in the control functions that were expanded when the order was imposed. Citi has been cutting some of these people in recent months. Internal auditors might be safe yet. 

Separately, Andy Burnham in the UK wants to cut non-compete clauses which he says have "gone too far" and are holding companies back. But hedge funds like non-compete clauses and are not sure Andy is right.

The Financial Times notes all the hedge fund objections to doing away with non-competes. They mostly revolve around the fact that non-competes protect "commercially sensitive information" and "the proprietary investment strategies that underpin the alternative asset management industry." 

We have been here before. Without non-competes, the argument goes that hedge funds would be forced to ensure that no individual knows the full secret sauce behind a trading strategy and that fund and trading firms would become havens of Taylorism with each person working on a tiny component of the process and having no view of the whole. The argument also goes that junior people and new hires would not be privy to secret information. At Citadel, for example, even some analysts are on non-competes. 

As we have noted previously, though, it's about more than this. Non-competes give portfolio managers and others years off and the opportunity to travel, read poetry, and become experts at playing padel. Without them, they would be like everyone else. 

Meanwhile...

Citi hired Eoghan Harrington and Christoph Heuer from BNP Paribas as managing directors within its financial sponsors team in the UK, Europe, the Middle East and Africa. (Financial News) 

Jump Trading hired Affaan Mustafa and Alejandro Soumah Fernandez, founders of Ito Markets Inc., a proprietary trading startup focused on buying and selling access to computing capacity. It also bought Ito Markets and will now have a compute trading desk. (Bloomberg) 

Two Sigma's head of talent acquisition says Two Sigma had 82 interns this summer and they completed core projects weeks before previous interns and got onto 'stretch goals.' (Business Insider) 

Lone Pine's hedge fund was up 44% this year through June, but has now lost nearly all those profits after wrong-way stock bets and short wagers. (Bloomberg)

“The trend is always going to be up and to the right,” said Sara Brescia O’Rear, a former pharmacist who retired in her 40s thanks to her investing success. “I’m willing to take on risk because I know it can pay off.” (WSJ) 

Watch what you say on LinkedIn. Chris Bradley at McKinsey & Co. told ex-Citi MD Julia Carreon that the glass cliff is "a very convenient way to always be a victim in the rain and empowered in the sunshine,” and now he's been demoted. (NYPost) 

Tony Shepherd, a former Goldman Sachs banker who now oversees the Liverpool charity St Andrew’s Community Network, says the government has built a conveyor belt for getting people on welfare, with little help to get them off again. (WSJ) 

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