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Citigroup (C) Faces $136M Penalty for Failing to Fix Data Issues (Revised)
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Citigroup Inc. (C - Free Report) announced that it has been penalized by the U.S. bank regulators with a $136 million fine for failing to make adequate progress in fixing data management issues. The Federal Reserve and the Office of the Comptroller of the Currency (OCC) disclosed the action on Wednesday. The company’s shares fell 1.03% in the after-market hours following the announcement.
The regulators stated that Citi made “insufficient progress” in dealing with the issues identified in 2020 which required Citi to fix these issues in its enterprise-wide risk management, compliance risk management, data governance and internal controls.
Michael J. Hsu, Comptroller of the Currency, stated, “While the bank’s board and management have made meaningful progress overall, including taking necessary steps to simplify the bank, certain persistent weaknesses remain, in particular with regard to data.”
In addition to the $400 million Citigroup had paid as part of the 2020 consent order, the company will also pay $60.6 million to the Fed and $75 million to the OCC.
Jane Fraser, CEO of Citigroup, stated, “we’ve always said that progress wouldn’t be linear, and we have no doubt that we will be successful in getting our firm where it needs to be in terms of our transformation.” “We’re committed to spending what is necessary to address our consent orders,” Fraser added.
This penalization occurred amid C’s attempts to transform and streamline its operations to boost its stock price.
Fraser, who took charge as CEO in March 2021, led the transformation through an emphasis on serving big and multinational corporations while divesting from unprofitable businesses to boost operational efficiency. This included a reduction in consumer banking services across many regions, layoffs and internal restructuring of business lines. This strategy is an undoing of the expansive “financial supermarket” model from the 1990s adopted by the company.
In June, CFO Mark Mason referred to 2024 as an “inflection year” and stated that by 2026, Citi aims to grow its full-year revenues by at least $6 billion with a cost reduction of at least $500 million. However, both Mason and Fraser admitted that the bank still needed to strengthen its regulatory and compliance functions.
Citigroup has been facing some regulatory scrutiny lately. This June, another regulatory blow occurred when regulators identified deficiencies in “living wills” submitted by Citi describing how the lenders would wind themselves down amid a catastrophic event. The bank has been asked to report to regulators its plans to correct the inadequacies by September. These plans must also address the shortcomings in the banks' next resolution plans, due on Jul 1, 2025.
Moreover, this February, regulators demanded immediate changes from Citi in how it evaluates the default risk of its trading partners. Additionally, the bank’s own auditors have found issues with a proposal to improve internal oversight. Thus, the Fed demanded the company to conduct a “gap analysis” of its risk management framework and internal controls system to determine what enhancements need to be made.
Over the past six months, shares of C have gained 27.3% compared with the industry’s growth of 19.8%.
Other Financial Services Firms Facing Similar Issues
Last month, Mitsubishi UFJ Financial Group, Inc.’s (MUFG - Free Report) banking and securities units have been penalized by Japan’s financial regulator for breaching the regulations governing client confidentiality. MUFG Bank Ltd., Morgan Stanley MUFG Securities Co. and Mitsubishi UFJ Morgan Stanley Securities Co. units are directed by the Financial Services Agency to reinforce its compliance measures.
Several clients of MUFG have already shifted their bond underwriting business as a result of this regulatory action.
Similarly, Wells Fargo & Company (WFC - Free Report) has been facing a proposed class action lawsuit alleging the bank for taking part in a $300 million Ponzi scheme. This scheme affected more than 1,000 investors, mainly senior citizens, and left them without substantial life savings.
The lawsuit filed stated that WFC knew about the fraudulent activities from 2011 to 2021. The company provided substantial assistance to the perpetrators while reaping the benefits from the scam.
(We are reissuing this article to correct a mistake. The original article, issued on July 11, 2024, should no longer be relied upon.)
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Citigroup (C) Faces $136M Penalty for Failing to Fix Data Issues (Revised)
Citigroup Inc. (C - Free Report) announced that it has been penalized by the U.S. bank regulators with a $136 million fine for failing to make adequate progress in fixing data management issues. The Federal Reserve and the Office of the Comptroller of the Currency (OCC) disclosed the action on Wednesday. The company’s shares fell 1.03% in the after-market hours following the announcement.
The regulators stated that Citi made “insufficient progress” in dealing with the issues identified in 2020 which required Citi to fix these issues in its enterprise-wide risk management, compliance risk management, data governance and internal controls.
Michael J. Hsu, Comptroller of the Currency, stated, “While the bank’s board and management have made meaningful progress overall, including taking necessary steps to simplify the bank, certain persistent weaknesses remain, in particular with regard to data.”
In addition to the $400 million Citigroup had paid as part of the 2020 consent order, the company will also pay $60.6 million to the Fed and $75 million to the OCC.
Jane Fraser, CEO of Citigroup, stated, “we’ve always said that progress wouldn’t be linear, and we have no doubt that we will be successful in getting our firm where it needs to be in terms of our transformation.” “We’re committed to spending what is necessary to address our consent orders,” Fraser added.
This penalization occurred amid C’s attempts to transform and streamline its operations to boost its stock price.
Fraser, who took charge as CEO in March 2021, led the transformation through an emphasis on serving big and multinational corporations while divesting from unprofitable businesses to boost operational efficiency. This included a reduction in consumer banking services across many regions, layoffs and internal restructuring of business lines. This strategy is an undoing of the expansive “financial supermarket” model from the 1990s adopted by the company.
In June, CFO Mark Mason referred to 2024 as an “inflection year” and stated that by 2026, Citi aims to grow its full-year revenues by at least $6 billion with a cost reduction of at least $500 million. However, both Mason and Fraser admitted that the bank still needed to strengthen its regulatory and compliance functions.
Citigroup has been facing some regulatory scrutiny lately. This June, another regulatory blow occurred when regulators identified deficiencies in “living wills” submitted by Citi describing how the lenders would wind themselves down amid a catastrophic event. The bank has been asked to report to regulators its plans to correct the inadequacies by September. These plans must also address the shortcomings in the banks' next resolution plans, due on Jul 1, 2025.
Moreover, this February, regulators demanded immediate changes from Citi in how it evaluates the default risk of its trading partners. Additionally, the bank’s own auditors have found issues with a proposal to improve internal oversight. Thus, the Fed demanded the company to conduct a “gap analysis” of its risk management framework and internal controls system to determine what enhancements need to be made.
Over the past six months, shares of C have gained 27.3% compared with the industry’s growth of 19.8%.
Image Source: Zacks Investment Research
Currently, C carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Financial Services Firms Facing Similar Issues
Last month, Mitsubishi UFJ Financial Group, Inc.’s (MUFG - Free Report) banking and securities units have been penalized by Japan’s financial regulator for breaching the regulations governing client confidentiality. MUFG Bank Ltd., Morgan Stanley MUFG Securities Co. and Mitsubishi UFJ Morgan Stanley Securities Co. units are directed by the Financial Services Agency to reinforce its compliance measures.
Several clients of MUFG have already shifted their bond underwriting business as a result of this regulatory action.
Similarly, Wells Fargo & Company (WFC - Free Report) has been facing a proposed class action lawsuit alleging the bank for taking part in a $300 million Ponzi scheme. This scheme affected more than 1,000 investors, mainly senior citizens, and left them without substantial life savings.
The lawsuit filed stated that WFC knew about the fraudulent activities from 2011 to 2021. The company provided substantial assistance to the perpetrators while reaping the benefits from the scam.
(We are reissuing this article to correct a mistake. The original article, issued on July 11, 2024, should no longer be relied upon.)