Citigroup Inc. CEO Says More Will Be Disciplined In Banamex Fraud Case

Citigroup Inc. (NYSE:C) CEO Michael Corbat told shareholders yesterday that he expects to see more people disciplined in connection with the $400 million Banamex fraud that has resulted in multiple investigations that could result in serious fines down the road on top of the money that has already been lost (though the bank is looking for ways to recover at least some of the money lost in bad loans).

“One person has already been terminated,” said Corbat, reports Dakin Campbell for Bloomberg. “I expect that others will be disciplined as well — either for actions, or, just as important, inactions that helped enable this fraud.”

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Citigroup Inc. (NYSE:C) has maintained that the fraudulent loans were isolated incidents and that there isn’t a systemic problem in its Mexican branch, but it is supposed to have anti-money laundering controls in place that would have flagged these transactions for further review. Those controls either weren’t in place as the bank claims, or someone at Banamex was ignoring or otherwise subverting them. Citi has brought in outside counsel to help it investigate what happened, but even if only one person is guilty of fraud, the incident would have been impossible without a broader lapse in judgment.

Lax anti-money laundering controls mean there could be more surprises

Failure to follow anti-money laundering rules could result in fines, but it also means that regulators will be looking at Citigroup Inc.’s (NYSE:C) operations more carefully. If these loans were able to sneak through, it’s possible that other questionable transactions have gone unnoticed in recent years and that we could be in for more surprises as investigations progress.

Citi down 12% since recent high

While Citigroup Inc. (NYSE:C) is still up for the last 52-weeks, it is down to $48.18 from a high of $54.81 at the beginning of the year, underperforming both the S&P 500 and the banking sector. While the Banamex fraud has been a blow to the company’s public image, investors are at least as upset that Citi’s capital plans were rejected by the Federal Reserve after the Fed’s independent stress test results came in as far less optimistic than Citi’s internal estimates.

This has put a delay on Citigroup Inc.’s (NYSE:C) plans to return cash to shareholders and could result in stricter scrutiny during the resubmission process.

Despite the problems that Citigroup Inc. (NYSE:C) has been facing, shareholders voted in favor of management’s proposed compensation plan and elected all nominated directors to the board. Corbat has his work cut out for him, but he has at least another year to start turning the ship around.