Citigroup hit by extra $3.5bn in charges

Citigroup will take about $3.5bn in legal and restructuring charges in the fourth quarter, as the US bank prepares to settle allegations of wrongdoing in rate-setting and anti-money laundering and make more redundancies.

Mike Corbat, chief executive, announced the charges on Tuesday. They will come close to wiping out Citi’s expected profit for the quarter, according to analyst estimates, which predicted about $3.5bn in net income. Mr Corbat said the bank should be “marginally profitable”.

Some $2.7bn of the charges are to settle various legal issues, including allegations — shared with other banks around the world — that Citi traders manipulated the London interbank offered rate, a key interest rate benchmark, and foreign exchange markets.

Citi also has its own legal issues, including allegations of weak anti-money laundering controls involving its Mexican subsidiary Banamex.

The size of the charges may raise questions given that other banks, facing a similar array of investigations from authorities around the world, have managed to increase their legal reserves more gradually.

However, the wild card for many banks is how big a penalty for foreign exchange violations will be demanded by the US Department of Justice. Some banks that have been penalised by other regulators said the DoJ fine remained difficult to judge, given prosecutors’ recent history of demanding record penalties.

Mr Corbat said: “The big things for us to remain out there are the combination of foreign exchange, LIBOR and AML and process controls with some other small ones.”

“Based on the conversations that we’ve had, and I think a number of precedents that have been established in the market, we’re at a point in the fourth quarter where we’re going to go and recognise what we believe are the charges necessary to largely put those behind us.”

If the additional legal costs do mean that Citi has indeed already adequately reserved for a DoJ settlement, that may be received positively. But shares in Citi fell 1.6 per cent to $55.46 after Mr Corbat’s comments on Tuesday.

The bank is also taking a $800m “repositioning” charge to be used for more redundancies on top of 20,000 job cuts made by Mr Corbat since he replaced Vikram Pandit as chief executive two years ago. Citi has been reining back its sprawling retail operation, pulling out of 16 countries from Japan to Egypt, in a quest for higher profitability.

Analysts had expected such a charge in the fourth quarter but had estimated it would be much lower. Some of the money will be used as part of Citi’s drive to close some of its support offices, which now contain redundant space given the shrinking of the most international US bank.

Mr Corbat’s comments came at a banking conference held by Goldman Sachs.