2nd UPDATE: Citadel Fixed-Income Trading 'Positive'

2nd UPDATE: Citadel Fixed-Income Trading 'Positive' - Source

Hedge-fund manager Citadel LLC's securities unit has had positive fixed-income trading revenue this year, and has no massive layoff plans in store for its investment-banking unit, a person familiar with the situation said Wednesday.

A report earlier Wednesday by a website said the $11 billion Chicago-based hedge-fund manager might plan to dismantle its securities operations after suffering losses on some high-yield loans.

"There is no plan for mass layoffs," the person said. "Citadel is not shutting down Citadel Securities or its fixed-income operations."

But the person said there could be staffing changes as the firm is undertaking its annual business review. Such reviews, which take place in the fourth quarter of each year, will decide what adjustments the firm has to make in preparation for the new year.

Business Insider, citing an "anonymous tipster," said Wednesday that Citadel might have mass layoffs in the next few days, and they are "connected to a wider dismantling" of Citadel Securities. The report, citing the tipster, said several senior Citadel Securities executives won't be with the firm for long.

The publication later backtracked. Citing another anonymous source, it said that there has been chatter among Citadel staff about the year-end review, though nothing has been decided yet.

Workers at hedge funds have been jittery about job security. D.E. Shaw & Co., one of the largest hedge-fund firms, is cutting 10% of its work force, demonstrating that the industry still isn't out of the woods.

A Citadel spokeswoman, when asked about the Business Insider report, said Citadel Securities continues to gain traction.

Citadel Securities is among Citadel's many efforts to expand beyond its traditional hedge-fund business. Its two main funds suffered losses of more than 50% in 2008, prompting it to suspend redemptions at one point.

Citadel Securities has four core businesses: institutional markets, execution services, institutional research and investment banking.

But since launching in May 2008, the investment-banking division has experienced high turnover, including the departure of three top executives, The Wall Street Journal reported, in January. In addition, Patrik Edsparr, the head of the division, was "let go" in May, according to an internal memo. Founder Kenneth Griffin said at the time he and other executives "did not see eye to eye" with Edsparr.

The unit's chief executive, Rohit D'Souza, left in October last year, followed by the head of Citadel's investment bank Todd Kaplan, who used to work with D'Souza at Merrill Lynch before joining Citadel. Peter Santoro left as Citadel's institutional-trading chief in December.

The Wall Street Journal said Citadel's historically trader-focused culture, where performance can often be easily measured, clashed at times with work styles more typical of Wall Street firms, where progress depends on long-term relationship building.

As a budding investment bank, Citadel Securities' revenue is too small to be compared to the likes of investment-banking giants Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS). But it was involved in various equities, debt capital markets and leveraged-loan deals, according to data provider Dealogic. They include CBOE Holdings' (CBOE) $390 million initial public offering in June, and high-yield bond issues by Equinox Holdings Inc. and regional television-broadcast company Gray Television Inc. (GTN), which raised a combined $790 million.

It was also the sole bookrunner for Freddie Mac's (FMCC) three mortgage-backed-security issues between July and September, worth a total $542 million, Dealogic said.

-By Amy Or, Dow Jones Newswires; +1 212 416 3142; amy.or@dowjones.com

(Margot Patrick in London contributed to this article.)