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Citi to Pay Regulators $400M for Long-Standing Deficiencies
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Citigroup (C - Free Report) has been slapped with a $400 million penalty by The Office of the Comptroller of the Currency (“OCC”) for long-standing deficiencies in its risk management and internal controls processes.
“We are disappointed that we have fallen short of our regulators’ expectations,” the company said in a statement. Further, it added “Citi has significant remediation projects underway to strengthen our controls, infrastructure and governance.”
Allegations
Both the OCC and the Federal Reserve have accused the bank of failing to implement effective risk and internal controls measures that complement with its size, complexity and risk profile.
Further, the Fed identified that the bank did not satisfactorily execute remedial measures relating to the consent order issued back in 2013 when Citigroup was involved in anti-money laundering compliance program. Also, lapses in remedies relating to the order issued in 2015 were found whereby the company was required to remove deficiencies in compliance and control infrastructure relating to its foreign exchange program.
The regulators also identified “unsafe or unsound practices” in relation to internal controls, which included lack of clearly defined roles and responsibilities among employees and other non-compliances.
Comprehensive Corrective Actions
Citigroup is required to take the OCC’s approval before undertaking any significant acquisitions. The regulator also holds authority to implement additional business restrictions or make changes in senior management and the board if it finds that no timely or sufficient progress is made in improving deficiencies.
Further, the Fed has ordered the bank to submit a plan regarding improvement of oversight within 120 days. Also, in the same time frame, it is required to conduct a gap analysis of enterprise-wide risk management framework, data governance state and internal controls systems. These would determine any room for further improvement in capital planning and risk control processes.
Also, the OCC has asked to form a compliance committee of five members, within 15 days, who will be responsible for monitoring and overseeing Citigroup’s compliance with the provisions of this consent order.
Our Take
The regulators’ rebuke was expected following the company’s involvement in probes recently, relating to loss of subpoenaed audio files and the accidental transfer to the creditors of renowned cosmetic company, Revlon.
Despite taking measures to combat the rise in expenses, such as layoffs, the company’s involvement in litigation issues might keep costs elevated. Also, declining fee income poses a key headwind.
Shares of the company have gained 1.3% over the past six months compared with 4.4% growth recorded by the industry.
Citigroup currently carries a Zacks Rank #4 (Sell).
Notably, banks continue to encounter legal probes and are charged with huge sums of money for the malpractices. In late September, JPMorgan (JPM - Free Report) agreed to pay a penalty of $920 million to settle the probes related to “historical trading practices by former employees in the precious metals and U.S. treasuries markets, and related conduct between 2008 and 2016.”
Also, in August, Goldman (GS - Free Report) resolved the multibillion-dollar 1Malaysia Development Berhad scandal by signing a settlement worth $3.9 billion with Malaysia. Deutsche Bank’s (DB - Free Report) U.S. unit entered into settlement with The U.S. Department of the Treasury’s Office of Foreign Assets Control, under which the German lender agreed to pay $583,100.
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It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
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Image: Shutterstock
Citi to Pay Regulators $400M for Long-Standing Deficiencies
Citigroup (C - Free Report) has been slapped with a $400 million penalty by The Office of the Comptroller of the Currency (“OCC”) for long-standing deficiencies in its risk management and internal controls processes.
“We are disappointed that we have fallen short of our regulators’ expectations,” the company said in a statement. Further, it added “Citi has significant remediation projects underway to strengthen our controls, infrastructure and governance.”
Allegations
Both the OCC and the Federal Reserve have accused the bank of failing to implement effective risk and internal controls measures that complement with its size, complexity and risk profile.
Further, the Fed identified that the bank did not satisfactorily execute remedial measures relating to the consent order issued back in 2013 when Citigroup was involved in anti-money laundering compliance program. Also, lapses in remedies relating to the order issued in 2015 were found whereby the company was required to remove deficiencies in compliance and control infrastructure relating to its foreign exchange program.
The regulators also identified “unsafe or unsound practices” in relation to internal controls, which included lack of clearly defined roles and responsibilities among employees and other non-compliances.
Comprehensive Corrective Actions
Citigroup is required to take the OCC’s approval before undertaking any significant acquisitions. The regulator also holds authority to implement additional business restrictions or make changes in senior management and the board if it finds that no timely or sufficient progress is made in improving deficiencies.
Further, the Fed has ordered the bank to submit a plan regarding improvement of oversight within 120 days. Also, in the same time frame, it is required to conduct a gap analysis of enterprise-wide risk management framework, data governance state and internal controls systems. These would determine any room for further improvement in capital planning and risk control processes.
Also, the OCC has asked to form a compliance committee of five members, within 15 days, who will be responsible for monitoring and overseeing Citigroup’s compliance with the provisions of this consent order.
Our Take
The regulators’ rebuke was expected following the company’s involvement in probes recently, relating to loss of subpoenaed audio files and the accidental transfer to the creditors of renowned cosmetic company, Revlon.
Despite taking measures to combat the rise in expenses, such as layoffs, the company’s involvement in litigation issues might keep costs elevated. Also, declining fee income poses a key headwind.
Shares of the company have gained 1.3% over the past six months compared with 4.4% growth recorded by the industry.
Citigroup currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, banks continue to encounter legal probes and are charged with huge sums of money for the malpractices. In late September, JPMorgan (JPM - Free Report) agreed to pay a penalty of $920 million to settle the probes related to “historical trading practices by former employees in the precious metals and U.S. treasuries markets, and related conduct between 2008 and 2016.”
Also, in August, Goldman (GS - Free Report) resolved the multibillion-dollar 1Malaysia Development Berhad scandal by signing a settlement worth $3.9 billion with Malaysia. Deutsche Bank’s (DB - Free Report) U.S. unit entered into settlement with The U.S. Department of the Treasury’s Office of Foreign Assets Control, under which the German lender agreed to pay $583,100.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>