Currencies

Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

Continue Reading

Banks

Basel Committe fail to sign off on latest bank reform measures

Banking regulators have failed to sign off the latest package of global industry reforms, leaving a question mark hanging over bankers who complain they have faced endlessly evolving regulation since the financial crisis. Policymakers had hoped to agree the contentious new measures at a crunch meeting held in Chile this week, but a senior official […]

Continue Reading

Financial

Travis Perkins and Polymetal to lose out in FTSE 100 reshuffle

Builders’ merchant Travis Perkins and mining company Polymetal face relegation from the FTSE 100 after their recent performances were hit by political events. The share price of Travis Perkins has dropped 29 per cent since the UK voted to leave the EU in June, as economic uncertainty has sparked concerns among some investors about the […]

Continue Reading

Economy

Eurozone inflation climbs to highest since April 2014

A welcome dose of good news before next week’s big European Central Bank meeting. Year on year inflation in the eurozone has climbed to its best rate since April 2014 this month, accelerating to 0.6 per cent from 0.5 per cent on the back of the rising cost of services and the fading effect of […]

Continue Reading

Financial

Wealth manager Brewin Dolphin hit by restructuring costs

Profits at wealth manager Brewin Dolphin were hit by restructuring costs as the company continued to shift its focus towards portfolio management. The FTSE 250 company reported pre-tax profits of £50.1m in the year to September 30, down 17.9 per cent from £61m the previous year. Finance director Andrew Westenberger said its 2015 figure was […]

Continue Reading

Categorized | Banks

Citigroup: Banamex bother


Posted on February 28, 2014

Pedestrians walk outside a Banamex bank branch©Bloomberg

The fraud was linked to Banamex loans to Oceanografia

Good news, Brady Dougan! It took a few days for dirt to kick up around another big bank, after Credit Suisse got in trouble over clients and tax evasion – but Citigroup delivered eventually. The bank said on Friday that 2013 earnings would take a retroactive hit after fraud in its prized Mexican unit, Banamex.

These unpleasant situations have, first, a financial cost. Banamex lent about $585m to an oil services company to finance receivables from Pemex, the state-owned oil company. According to an internal memo from Citi, it appears that the invoices from Oceanografia – processed by a Banamex employee – were falsified to show approvals from Pemex. It is unclear how many people were involved but as much as $400m was misappropriated. The fraud will reduce 2013 net profit by $235m after taxes, or 1.7 per cent to $13.7bn. (The cut in the fourth quarter is about 9 per cent.) Return on equity was thus 12 basis points lower at 6.9 per cent.

    A few hundred million dollars does not break a bank the size of Citi. But it is not inconsequential either, given the bank’s low level of profitability (though Citi, depending on the ensuing investigation, may be able to recover some damages).

    But there are broader implications. True, banks extend risk and sometimes they get burnt. But the issue here is not one of lending to a company that fails; it is fraud. And that raises questions about the bank’s controls and credibility. The inquiry is ongoing and Citi believes the fraud is isolated. But naturally as part of the post mortem, Citi has begun a review, throughout Banamex and the rest of bank, of programmes similar to the one at issue. That raises the question of what else may be found, and the cost of that in both dollars and perception. Citi already faced questions over souring loans to housebuilders in Mexico.

    The Oceanografia loans are a tiny part of Citi’s loan book. But the financial crisis has made everyone alert to evidence big banks are too big to manage: allegations of brokers in Switzerland helping US clients avoid taxes or questionable and costly trading within a bank’s own investment office; fraud in Mexico; and so on. This stuff adds up.

    Email the Lex team in confidence at lex@ft.com