News broke on Friday that Citigroup (C 5.22%) 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.
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