Fed questions counterparties about Citadel: report

CHICAGO (Reuters) - Examiners with the Federal Reserve have questioned Wall Street counterparties about their exposure to debt and other holdings of Citadel Investment Group, The Wall Street Journal said on Saturday, a report Citadel denied.

Citing people familiar with the matter, the Journal said the Fed questioned the counterparties in at least two instances in recent days.

But Katie Spring, a spokeswoman for Citadel, denied the rumors that the Fed had spoken to the hedge fund’s counterparties specifically about Citadel and possible problems with its debt. “We deny these rumors,” she told Reuters on Saturday.

She said that Citadel continues to have more than 30 percent of its investment capital in cash.

The Journal’s report came a day after Citadel, one of the world’s largest hedge funds, said it had more than $10 billion in available credit. The Chicago-based fund company, which manages $18 billion, held a conference call to quell rumors it was facing liquidity issues.

The fund firm, founded by Kenneth Griffin 18 years ago, denied on Friday market talk it had approached the U.S. Treasury for a cash injection and that the Federal Reserve was coming to inspect its accounts.

The rumors had surfaced in the wake of news that Citadel’s two main funds had lost 35 percent since January, traders and hedge fund investors said on Friday.

The Fed has been speaking with dozens of prominent hedge funds and their counterparties in the past weeks to monitor trading and liquidity issues as the financial crisis deepened, industry sources have said.

The average hedge fund has lost roughly 19 percent since January, the $1.7 trillion industry’s worst-ever performance, according to data from Hedge Fund Research.

Reporting by Kyle Peterson and Svea Herbst-Bayliss; Editing by Peter Cooney and Philip Barbara