Citi Revises 3Q Lower Over Legal Accruals

Citigroup Inc (NYSE:C) said it was setting aside an extra $600 million to cover legal expenses in the third quarter due to "rapidly evolving regulatory inquiries," while also disclosing that it was subject to foreign exchange market probes.

Citigroup is one of six major banks that are expected to settle with Britain's Financial Conduct Authority by mid-November over allegations that the banks manipulated foreign exchange markets.

The banks are aiming to settle for a total of around 1.5 billion pounds sterling, or $2.42 billion, sources have told Reuters. Barclays Plc, another of the six banks, said earlier on Thursday that it had set aside 500 million pounds for the third quarter to cover potential fines.

Big banks have paid billions of dollars in recent years to settle investigations into their mortgage lending, commodities and interest-rate trading, and a wide range of other activities. Authorities have broadly been trying to hold banks accountable for the excesses that led to the financial crisis.

While the legal costs have dragged down profits, weighed on share prices, and consumed managements' time at the banks, they have not forced banks to raise money by issuing shares, and are not expected to.

Citigroup, for example, is likely to make nearly $28 billion in pre-tax profits over the next five quarters, way more than enough to cover heightened legal expenses, according to analysts at Bernstein Research.

The bank's shares fell 2 percent to $52.05 in extended trading after it revised down its third-quarter net income to $2.84 billion from the $3.44 billion it had posted on Oct. 14.

On a per-share basis, Citigroup adjusted its profit to 88 cents for the quarter. It had earlier reported a profit of $1.07 per share.

Like most banks, Citigroup does not disclose how much money it has set aside to cover legal costs that it can dip into in the future, known as its "reserves." Bernstein Research analysts estimated before Thursday's announcement that Citigroup's remaining reserves were about $2.5 billion at the end of September.


After announcing the additional legal expense on Thursday, Citigroup said in a quarterly filing with the Securities and Exchange Commission that its estimate of possible legal costs in excess of its litigation reserves was about $5 billion, the same as it estimated for the end of the previous quarter and for year-end.

Citigroup faces additional possible settlements. Federal authorities are investigating possible money laundering through Citigroup's Banamex USA unit, for example. The Mexican part of the Banamex business has been beset by multiple problems in the last few years, including fraudulent loans and rogue trading.

Citigroup said in the filing that it was cooperating fully with investigations into its foreign exchange business in Britain, the United States, and elsewhere.

(Reporting by David Henry in New York and Ankur Banerjee in Bangalore; Editing by Saumyadeb Chakrabarty, Robin Paxton, Dan Wilchins and Andrew Hay)