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Citigroup (C) Faces Lawsuit From Ver Capital Over $262M Loan Deal

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Citigroup, Inc. (C - Free Report) has been sued by an investment management firm, Ver Capital Partners, in London, for liquidating part of its bond portfolio to requite the default on €224 million ($262 million) in loans, alleging that the lender liquidated the assets to its trading desk at non-competitive prices after the coronavirus crisis dampened their value.

By carrying out unlawful “self-sales” at undervalued prices, Citigroup had created a conflict of interest at the bank, while neglecting chances of better offers from other possible buyers, and leaving the fund destitute.

Citigroup has not yet filed a defense to the claim.

The Ver fund was among the investors that had amassed into riskier debts issued by European firms, appealed by high returns in an age of stooping low interest rates. Citigroup had agreed to finance Ver’s bets on those loans as well as increased the size of its facility three-fold by the end of February 2020, as per the claim.

Despite leveraged loans steadily gaining value over the last decade, these faced a jolting impasse in March 2020, the worst month for European high-yield credit assets since the financial crisis.

Facing the turmoil, Ver had to sell assets for an aggregate of €78.5 million, according to the claim. However, on Mar 24, 2020, Citigroup’s managing director Cristina Paviglianiti emailed Ver to announce that the lender has planned to extort against the remaining collateral tied to the loan.

On the same day, Citi synthesized the sale of Ver’s assets. As per the claim, the trading data showed that there were higher bids available for 36 out of the 37 assets to be sold. Citigroup’s bid was the lowest in the majority of cases. Nonetheless, the bank continued to dispose assets until an unidentified Ver investor deployed additional funds to meet the the remaining portion of the facility, as per the fund.

Our Take

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

Shares of the company have gained 9.4% over the past six months compared with 13.9% growth recorded by the industry.

Zacks Investment Research
Image Source: Zacks Investment Research

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

Several banks continue to encounter legal probes and have been charged with huge sums of money for business malpractices. This May, Bank of America (BAC - Free Report) agreed to pay a penalty of $75 million in order to settle an excessive fees probe.

Last December, Mr. Cooper Group Inc. (COOP - Free Report) was charged a penalty of $28.6 million in order to settle legal probes with Consumer Financial Protection Bureau regarding certain improper loan servicing practices committed between 2010 and 2015.

In November 2020, Wall Street major JPMorgan (JPM - Free Report) was penalized with a fine of $250 million for poor risk management and internal controls over the fiduciary business.