Citicorp's investment banking office in London lost an estimated $40 million during Black Monday's stock market collapse on Oct. 19 in a series of stock transactions in Europe that violated the company's internal regulations and may have broken foreign and U.S. securities laws, according to sources in Citicorp and Congress.

Citicorp, the largest bank company in the U.S., has just completed an internal investigation of its London office, which oversees the company's European securities trading offices, according to Citicorp sources. The company expects to tell employes its conclusions this week.

The trades in question far exceeded the daily exposure limit of several million dollars set by Citicorp policy, sources at the company and in Congress said.

Citicorp's traders in Europe bypassed company regulations by failing to record transactions, an apparent violation of U.S. and foreign securities and banking regulations, congressional sources said.

The company's investigation focused on Citicorp's securities trading office in Dublin, which lost at least $25 million, company sources said.

Citicorp spokesman John Maloney would not confirm or deny the reports. But he said Citicorp's losses from the Oct. 19 stock market collapses were not large enough to require the bank company to report them to shareholders. Citicorp earned more than $1 billion in profits last year.

"Our policy is not to discuss trading situations that we would not have to report to shareholders," Maloney said.

The spokesman, who said he was speaking in general and not of any specific situtation, said Citicorp holds an internal investigation any time employes break company rules and that it routinely informs U.S. regulators of such inquiries

Maloney said that the bank also routinely refers violations of law to U.S. regulators or to foreign governments, whichever is appropriate.

The Federal Reserve Board, the federal agency that regulates companies that own banks, has been informed that Citicorp had problems in its London and Dublin securities offices that led to losses from the stock market collapse, congressional sources said. Citicorp officials informed the House and Senate banking committees several days ago about the problems so that news of the loss would not take lawmakers by surprise, aides to the committees said.

Officials from the Fed could not be reached for comment yesterday.

The revelation of New York-based Citicorp's trading problems comes at a sensitive time for the U.S. banking industry.

U.S. banks and regulators are close to convincing Congress to let commercial banks into the business of underwriting and dealing in stocks and bonds here in the United States. Congress passed a law in 1933 separating commercial banking from most of the securities business, also known as investment banking.

With few exceptions, U.S. banks are barred from the investment banking business domestically but are free to sell a full range of stock and bond services in Europe.

One of the U.S. banks' strongest arguments in favor of getting permission to deal in and underwrite stocks and bonds in the United States is that they have for years been performing such activities abroad without mishap and without adding risk to the parent bank companies, congressional aides said.

Citicorp is the second major U.S. bank since the stock market plunge to have securities losses, and possible legal violations, become public. A securities trading unit of Continental Illinois Corp. wrote off $90 million in connection with the collapse and was reprimanded by federal regulators for improperly borrowing money from its bank parent, Continental Illinois National Bank & Trust.

Continental Illinois is allowed to own the unit, First Options of Chicago, because the unit is a clearing house that matches buyers and sellers of stock options and options on stock indexes. First Options does not buy and sell stock for its own account because such activities are barred by the 1933 U.S. law.

Citicorp's blunder in Europe could provide new ammunition to opponents of U.S. banking deregulation who could claim that even sophisticated banks like Citicorp can't control the investment banking operations they already have.

Details of Citicorp's problems in London and Dublin are reported in this week's issue of Business Week. The magazine reports that Chris Weafer, a Citicorp trader in Dublin, is being blamed for exceeding company trading limits in stocks. Weafer, reached at his home in Dublin late last night, would not comment.

The magazine says that on Nov. 19, Francesco Redi, who heads Citicorp's trading operations in Britain and Ireland, resigned as a result of the losses and violations of company policy. Redi could not be reached last night