Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Citigroup Inc. Revises Income Down $360 Million Due to Fraud in Mexican Operations

Today Citigroup (NYSE: C  ) announced it will be reducing its fourth-quarter and full-year results due to fraudulent activity found in its subsidiary in Mexico. As a result of the fraud, Citigroup will be revising its pre-tax income down by $360 million, and its after-tax income by $235 million. As a result, Citigroup is lowering its full-year 2013 net income from $13.9 billion to $13.7 billion.

Banamex building in Mexico City. Source: Thelmadatter.

According to the company, at the end of 2013 Citi had extended roughly $585 million in short-term credit to an oil services company in Mexico called Oceanografia S.A. ("OSA") through its Banco Nacional de Mexico ("Banamex") subsidiary. Banamex issued the credit through an accounts receivable program. OSA was a supplier to the state-owned oil company in Mexico, Petróleos Mexicanos ("Pemex").

Yet on Feb. 11, Citi found out OSA had been suspended from new government contracts from the Mexican government, Citi said. Upon a review of its credit exposure to OSA, with the assistance of Pemex, Citigroup determined only $185 million of the $585 million in accounts receivables owed to Banamex by Pemex were legitimate. Citigroup will charge the $400 million difference as an operating expense to its Transaction Services business. In addition, Citigroup will in turn offset compensation expenses of $40 million as a result of the variable compensation plan at Banamex, resulting in the $360 million pre-tax expenses.

"Although our inquiry into this fraud is continuing, we have been responding forcefully over the past week by assessing the overall exposure to Citi, coordinating with law enforcement, pursuing recovery of the misappropriated funds, and seeking accountability for anyone involved," noted CEO Michael Corbat in the company's press release. The company said the fraud is seemingly isolated to its involvement with OSA.

Corbat said the company is conducting a "rapid review" of all lending programs throughout its global operations similar to the one between OSA and Banamex. In addition, it is working with legal and law enforcement personnel in Mexico and it said this could result in the recovery of the damages as a result of the fraud.

"I can assure you there will be accountability for those who perpetrated this despicable crime and any employee who enabled it, either through lax supervision, circumvention of our controls, or violating our Code of Conduct," concluded Corbat in the press release. "[W]e will make sure that the punishment sends a crystal clear message about the consequences of such actions." 


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: 2858912, ~/Articles/ArticleHandler.aspx, 8/29/2015 5:28:27 AM

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...

Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

Today's Market

updated 8 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:01 PM
C $53.28 Down -0.16 -0.30%
Citigroup Inc CAPS Rating: ***