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Citigroup Resolves LIBOR Manipulation Probe, To Pay $100M

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Continuing with the resolution of past misconducts, Citigroup (C - Free Report) has agreed to resolve a lawsuit that accused it of rigging London Interbank Offered Rate (LIBOR). The interest-rate manipulation by the banking giant had affected trillions of dollars of financial instruments. The company will be paying a combined fine of $100 million to settle the case.

Allegations

Citigroup had been accused by around 42 states for its fraudulent act against government and non-profit entities. The settlement, announced last week, alleged the bank for misrepresentation of true picture of the benchmark interest rate to state and local governmental, not-for-profit organizations and institutional trading counterparties.

Citigroup's fraudulent activity took place in 2008 and 2009 during the financial crisis.

“Our office has zero tolerance for fraudulent or manipulative conduct that undermines our financial markets,” New York Attorney General Barbara Underwood said in a statement. “Financial institutions have a basic responsibility to play by the rules -- and we will continue to hold those accountable who don’t,” Underwood further noted.

Citigroup said in a statement, “Today’s settlement represents another significant step for Citi in resolving its legacy interbank offered rate litigation. Citi has adopted industry-wide reforms related to participation in interbank offered rates and other benchmark rates and made substantial investments in its systems, controls and monitoring processes to better guard against inappropriate behaviour.”

Citigroup has agreed for co-operation and did not admit or deny from wrongdoings.

LIBOR is a widely accepted benchmark rate. Several financial institutions, mortgage lenders and credit card agencies lay down their own rates in relation to this. Derivatives and other financial products are connected to this rate.

Therefore, manipulation of benchmark interest rates by major financial institutions has triggered thorough investigations by regulatory bodies across Europe, Asia and America. Investigations revealed huge scams, with nearly $300 trillion of loans, mortgages, financial products and contracts being linked to the tampered interest rates.

Similar Settlements

The latest settlement by Citigroup follows the slew of global fines which have reached $9 billion. In October 2017, Deutsche Bank (DB - Free Report) settled a similar case by paying $220 million as penalties to 45 states, resolving the U.S. and U.K. investigations.

Previously, Swiss bank UBS Group AG (UBS - Free Report) had also been penalized an amount of more than $1.5 billion by the U.S. and European authorities for manipulating Libor. Wall Street biggie — JPMorgan (JPM - Free Report) — has also settled a similar case by paying fines of more than $100 million to European authorities.

Conclusion

Regulatory authorities are investigating the matter and plan to put forward a landmark judgment, in a bid to curb the occurrence of such shrewd practices in future, bring justice to the sufferers, and punish the wrongdoers. While the settlements will put to rest a long-drawn investigation and banks can breathe relief, this comes as a huge blow to their financials. Further, such settlements could be called exemplary and trigger similar cases by other banks depending on the charges against them.

Citigroup has been settling lawsuits and regulatory probes with a goal to focus on core operations. Nonetheless, the banking giant seems to have resolved majority of litigation matters and now intends to strengthen its core business. With an improving rate scenario and rise in loan demand, the company has been able to improve profitability.

This is highlighted by Citigroup’s improved share price performance, indicating investors’ optimism for future growth. Over the past year, the company’s shares have rallied 2.9% compared with the industry’s gain of 11.6%.

 


 

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

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