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On Wednesday night, The New York Times reported that the FBI and U.S. attorneys in New York City opened an investigation into Citigroup's practices in Mexico, where there's been an apparent $400 million fraud involving an oil company. This is not Citigroup's only problem.
While the bank has not been accused of wrongdoing, federal authorities are currently investigating both the Mexico fraud and a possible instance of money laundering in California. Citigroup is not in good favor with the Federal Reserve, either. So will anyone else at the bank be punished? Here is a guide to their troubles.
Fraud in Mexico
Citigroup disclosed in February that Banamex, its Mexico unit, uncovered what looks to be a fraud involving an oil services company. According to the bank, at least one Banamex employee processed fake documents to help the oil services company get a loan it could not repay. This resulted in a $400 million loss, but Citigroup might not be a mere victim. Authorities are investigating whether the Banamex fraud involved co-conspirators in the states.
Likelihood the bank will be punished? Medium. While U.S. attorney Preet Bharara won't comment on the investigation, he did have this to say in a speech to Wall Street lawyers last week:
Effective deterrence sometimes requires that institutions be punished, because sometimes it is the institution that has failed.
Money laundering in California
Early in March
, the bank announced it was being investigated by federal prosecutors to examine "whether the bank lacked proper safeguards against clients laundering money" between Los Angeles and Banamex. There is suspicion that drug money flowed through the bank. U.S. attorneys in Massachusetts issued a grand jury subpoena to the bank's LA affiliate, related to the bank's anti-money-laundering compliance. (The exact scope of the subpoena remains unclear.) The Fed has warned the bank before about boosting surveillance to catch terrorists and other criminals.
Likelihood the bank will be punished?
Medium. The Times calls this investigation
"perhaps more threatening" than the Banamex fraud. It doesn't look good that Citigroup has already been warned about this exact issue.
Capital projections rejected by the Fed
Last week, the Fed rejected Citigroup's capital projections. This is more embarrassing for the bank than anything else — Citigroup is the only one out of the top five banks to be rejected. Perhaps because of the bank's current issues with global transactions, the Fed cited concerns with Citigroup's "ability to project revenue and losses under a stressful scenario for material parts of the firm’s global operations."
Likelihood the bank will be punished? The embarrassment is the punishment, but Corbat himself could be in hot water. The last time Citigroup failed the Fed's stress test in 2012, CEO Vikram Pandit was ousted.
Mike Mayo, the CLSA banking analyst, tells the Times
, "There’s no question in our minds that heads should roll."
For his part, Corbat says, "needless to say we are deeply disappointed by the Fed’s decision."
Still, none of these woes are "London whale" status. (Competitor JPMorgan suffered a $6.2 billion trading loss in 2012). While these investigations place Citigroup in a similar category to JPMorgan, Corbat has it a lot better than Jamie Dimon.
This article is from the archive of our partner The Wire.