The Case That Could Cost Citigroup $8.3 Billion

News broke on Friday that Citigroup (NYSE: C  ) may have to go back into court to refight a case that could cost it $8.3 billion. As expected, the market is showing its displeasure, with shares of the superbank opening tentatively in the green today, but now decidedly into the red.

Back on Terra Firma, unfortunately
The case involves the 2007 purchase of recording and publishing giant EMI by British financier Guy Hands and his private equity fund, Terra Firma Capital. Citi was Terra Firma's banker for the $6.8 billion transaction.

In his $8.3 billion suit, Hands alleged that a Citi investment banker lied about another bidder, which resulted in Terra Firma grossly overpaying for EMI. The case went to court, and Citi won, but now a federal appeals judge has overturned the jury verdict, citing that "improper jury instructions from the [original] trial court judge required a reversal," according to The New York Times. 

Look ma, no financial crisis!
This potential payout is unusual in at least one regard -- it's not related to the financial crisis. Whether it's Citigroup, Bank of America, JPMorgan Chase, or Wells Fargo, when you hear about a multi-billion dollar payout anymore, you automatically assume it relates back to the financial crisis. And 99 times out of 100, you're right.

So, at least this isn't another soured-securities case, but a potential $8.3 billion payout isn't a jolly proposition, whatever its origin.

There is the chance this could be settled out of court, which could be a good thing, because if it doesn't, the case would end up in Judge Jed S. Rakoff's court. Rakoff, who sits on the U.S. District Court in the Southern District of New York, has gotten a reputation as a "hanging judge," though he's been as tough on regulators as he has been on Wall Street.

Regardless of how the case eventually turns out, the reopened wound is almost undoubtedly unsettling investors today. Of course, a look around the sector also shows the rest of the Big Four down in the mouth, which is likely affecting Citi's performance, too.

Because it's so difficult to ascertain exactly what makes a stock move on a day-to-day basis, here at The Motley Fool, we stress a long-term approach to investing. Tune out the market noise and tune into the fundamentals of the companies you're invested in. And leave the daily ticker checks to the day traders: Your broker won't thank you, but your portfolio will. 

Looking for in-depth analysis on Citi?
Then look no further than our new premium report. Inside, Motley Fool senior banking analyst Matt Koppenheffer cracks the superbank's code, telling you how it works, how it makes money, and what areas investors need to watch going forward. He'll also give you three reasons to buy and three reasons to sell. And with quarterly updates included, this premium report could quite literally be the last source of investment research you'll ever need on Citigroup. For immediate access, simply click here now.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2468305, ~/Articles/ArticleHandler.aspx, 10/20/2014 11:58:15 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement