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Citi (C) Suit to Recover Accidental Payment Faces Rebuke

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In an unexpected blow to Citigroup (C - Free Report) , a U.S. district court in New York has kept the bank from recovering more than half of the $900 million it had accidently wired to several lenders of the cosmetics brand Revlon, Inc. .

Jesse Furman, a U.S. district judge in Manhattan, reasoned that had Citigroup “realized its error and notified the lenders within one day”, ruling might have been in its favor. However, he stated that if an accidental transfer pays off a debt, the receiver is allowed to keep the funds, provided he is not aware of the error and has no role to play in it.

He also said, “To believe that Citibank, one of the most sophisticated financial institutions in the world, had made a mistake that had never happened before, to the tune of nearly $1 billion — would have been borderline irrational.”

"We strongly disagree with this decision and intend to appeal. We believe we are entitled to the funds and will continue to pursue a complete recovery of them." Bloomberg quoted Danielle Romero-Apsilos, a spokesperson for Citigroup.

Brief Background

In August 2020, Citigroup had transferred about $900 million to Revlon’s creditors, while intending to send only $7.8 million as interest payment.

Though the lender was able to recover some of the amounts in what it explained to be a “clerical error”, some of the creditors, including Brigade Capital Management, Symphony Asset Management and HPS Investment Partners, opted to retain the extra amount as debt repayments.

The extra money came as a blessing for creditors as the loan was trading at less than 30 cents on a dollar, which reflected slight chances of a full recovery.

The above-mentioned creditors were already in a suit with Revlon over debt-restructuring tactics. Further, the bank was already planning to resign as an administrative agent on the loan.

Our Take

Despite taking measures to combat the rise in expenses, the company’s involvement in litigation issues might keep legal costs elevated. However, it remains committed to executing growth strategies, and continues to make steady progress toward its financial targets.

Shares of the company have gained 27.4% over the past six months compared with 36.3% growth recorded by the industry.

Citigroup currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Comerica Incorporated (CMA - Free Report) has witnessed a 18.7% upward estimate revision over the past 30 days. The company’s shares have gained 66.7% over the past six months. It flaunts a Zacks Rank #1 at present.

M&T Bank Corporation’s (MTB - Free Report) shares have gained 42.3% over the past six months. Further, the company’s earnings estimates for the ongoing year have moved 13.5% north in the past 30 days. It currently sports a Zacks Rank of 2 (Buy).

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