Citigroup is to take a $1.5bn charge in the fourth quarter, including $1.3bn to cover the costs of potential litigation relating to the settlement of Eliot Sptizer’s probe into Wall Street’s investment banks.
The charge comes after the banks agreed to pay up to $1.4bn between them to settle accusations that they misled investors during the 1990s stock market bubble.
However, the figure of $1.5bn is well beyond the $400m Citigroup agreed to pay in fines, and will take a hefty chunk out of fourth quarter earnings. The bank made $3.9bn last quarter.
Sandy Weill, chairman and chief executive, said that money would be used to establish a reserve to cover litigation arising from the settlement, including those related to Enron. It also includes a $200m charge for bad loans.
“Given the uncertainties of the timing and the outcome of this type of litigation, the large number of cases, the novel issues, the substantial time before the cases will be resolved, the multiple defendants in many of them, this reserve is difficult to determine and of necessity subject to future revision,” said Mr Weill.
Citigroup also said that Sallie Krawcheck, chief executive of Salomon Smith Barney arm, Citigroup’s investment banking arm, would meet with the group’s board “periodically to discuss analyst independence”.
Friday’s settlement resolved multiple investigations into whether banks tried to curry favour with corporate clients via overly rosy research or steering shares in “hot” initial public offerings to influential executives a practice known as spinning.
The agreement which, in theory, also covers the banks’ international operations bans IPO allocations to senior executives or directors, bars analysts from working with bankers on deals or being paid directly from deal proceeds, and requires banks to fund independent research.
Banks will have to pay $900m in fines for past abuses, $450m over five years to fund independent research and $85m for investor education.
Citigroup’s chunk involved a $300m fine, a $75m charge for outside research and $25m for investor education.