As trading closed on Friday, shares in Citigroup (NYSE:C) were at $47.40, up 0.81% on the day. By the time trading resumed yesterday morning, share prices had fallen to $46.02, for a plummet of 3%.
Something spooked off-hour investors, and it might have been foreknowledge of Citi's Monday announcement that it would settle an investor lawsuit to the tune of $730 million.
Misled by misstatements
The class action suit contended that investors "were misled by misstatements and omissions in the company's disclosures" regarding preferred shares purchased between May 11, 2006 and November 28, 2008.
In its statement, the superbank denied it was settling the suit out of any admission of guilt, and that it is instead settling "solely to eliminate the uncertainties, burden and expense of further protracted litigation." According to Citi, the $730 million will be paid out of its existing legal-defense reserves.
Don't worry, be (kind of) happy
The financial crisis strikes again. Just when you think it's safe to go back in the superbank waters, up pops another bottom-line-robbing lawsuit, fine, or payout. As we all know, litigation for many types of claims can have an exceedingly long shelf life. But of course, these kinds of crash-related issues are not just a problem for Citi.
Bank of America (NYSE:BAC) had an expensive 2012 in that regard, and in January agreed to pay Fannie Mae more than $10 billion to settle claims on soured home loans that originated in the run-up to the financial crash. JPMorgan Chase and Wells Fargo have had similar challenges, too, though to a much lesser extent.
Chalk that up to an overall more conservative lending style, and a more-disciplined overall company culture. And for Citi investors, the good news is the superbank seems to be heading in that direction, too. In the bank's statement, it stated outright that "this settlement is another ... step toward resolving our exposure to claims arising from the financial crisis."
And in a recent iron-willed show of discipline and determination, the bank did not request permission from the Federal Reserve for a dividend increase or share buybacks after its surprisingly good performance on the 2013 tress tests. My guess is, CEO Michael Corbat wants to genuinely strengthen the bank for the long term, even if shareholders have to be patient in the short term.
So while this $730 million settlement can hardly be called good news, and may have been behind the weekend's share-price plummet, I believe the bank is on firmer ground than ever and is heading in the right direction.