Citigroup (C), the largest U.S. bank, was freed Tuesday from a year-long ban on big mergers after the Federal Reserve Bank of New York said the bank had made significant strides in tightening internal controls.

The Federal Reserve, the main U.S. bank regulator, imposed the ban in March 2005 as Citigroup was buying privately held First American Bank, telling the New York-based bank to hold off on big takeovers until it tightened internal controls and addressed various regulatory problems.

A letter from William Rutledge, executive vice president of the New York Fed, released in a regulatory filing on Tuesday, said Citigroup had made "significant progress" in implementing its new compliance risk management program.

"Consequently, the understanding that you would refrain from significant expansion is no longer in operation," Rutledge wrote in the letter, dated April 3, adding that the Fed would carefully review any future expansion proposal by Citigroup.

Analysts said this freed up the bank but they were not expecting Chief Executive Charles Prince — who implemented a five-step plan to address compliance issues — to pursue any major deals as his strategy was to focus on organic growth.

"This is a precursor to a deal — but I would not look for something that changes the face of the franchise," said Anton Schutz, who runs the Burnham Financial Services Fund.

Prince, in an internal memo on Tuesday, thanked staff for their work to strengthen controls and compliance and said the bank would remain vigilant over the way it conducted business, while stressing that organic growth was its major focus.


Last December, Prince signaled that Citigroup would be seeking to expand its international businesses this year but said big acquisitions were unlikely with the focus on organic growth, opening new branches and possibly smaller purchases.

In a separate announcement on Tuesday, Citigroup unit Citibank said it had struck a deal with 7-Eleven Inc. to provide free ATM services in more than 5,500 stores in the United States, a move to help reverse a decline in consumer banking profit.

"We are fully focused on our strategic initiatives, which emphasize our organic growth opportunities, and build on our capabilities in attractive businesses and geographies," Prince said in the memo on Tuesday.

The Fed's announcement about Citigroup's improved controls came just four days after Citigroup was sued for insider trading by Australia's securities regulator.

In Australia's first such insider trading case against a company, the Australian Securities and Investments Commission said Citigroup's wrongdoing took place while the bank was advising transport group Toll Holdings Ltd. on a $3.3 billion (A$4.6 billion) bid for rival Patrick Corp Ltd.

The bank denies any wrongdoing but faces a possible fine of $714,000 (A$1 million) as the commission plans to seek orders directing the bank to strengthen conflicts-of-interest procedures and stop it trading shares of companies it advises on deals.

But the accusation was seen as a minor glitch for Prince who has overseen the clean-up of several costly ethics and regulatory problems since becoming chief executive in October 2003.

The bank paid $4.6 billion to settle lawsuits over its role in the failures of energy trader Enron Corp. and phone company WorldCom Inc. Japanese regulators forced Citigroup to close its private bank in that country, and European regulators faulted a bond trade that roiled markets.

Citigroup still faces a $10 billion lawsuit for its role in the insolvency of Italian dairy company Parmalat.

Citigroup shares rose 40 cents to $47.81 in early trading on the New York Stock Exchange. The shares have remained stagnant in the past two years, virtually unchanged while the Philadelphia KBW Bank Index is up about 16 percent.