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Citigroup Suits Cost $1.5BN

Scandals Could Be Pricier, Admits Bank

Dec 24, 2002 | The Guardian

Citigroup will take a $1.5bn (£94m) charge in the fourth quarter to pay for its involvement in the financial scandals of the past year, but yesterday admitted the bill could rise.

The sum relates to last week's broad settlement of conflict of interest allegations on Wall Street, as well as potential lawsuits related to the settlement and from disgruntled shareholders in Enron, the bankrupt energy firm.

The bank agreed to pay $300m in penalties plus $100m to fund independent research and investor education as part of the deal with the New York state attorney general, Eliot Spitzer, and financial regulators. The fine was the largest paid by any bank involved in the agreement.

Sanford Weill, the chairman and chief executive, hoped the settlement would "bring to a close a difficult chapter in our history". Shares in the bank slipped 54 cents to $37.60 in midday trading.

Friday's deal involves the 10 largest Wall Street banks paying $1.4bn to settle allegations that analysts misled investors to attract investment banking business to their firms.

Salomon Smith Barney, owned by Citigroup, has been at the centre of the claims. Publication of internal emails disclosing conflicts of interest led to the resignation of a star telecoms analyst, Jack Grubman, and the ousting of Michael Carpenter, who ran Salomon.

Citigroup and Mr Grubman face 62 potential class actions regarding research, according to a filing with the securities and exchange commission.

The bank is setting up a $1.3bn reserve for the cost of the settlement and toward the estimated costs of private litigation related to the conflict of interest allegations and Enron. The other $200m in the next quarter's charge is to cover bad loans.

A statement from the bank said there were many lingering issues. "Given the uncertainties of the timing and outcome of this type of litigation, the large number of cases, the novel issues, the substantial time before these cases will be resolved, and the multiple defendants in many of them, this reserve is difficult to determine and of necessity subject to revision."


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