Citigroup Said To Face Criminal Inquiry

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Sources have apparently told DealBook that the FBI and the Manhattan U.S. Attorney’s office are investigating Citigroup Inc (NYSE:C) in connection with the previously reported fraud adding up to $400 million. They also said that there are a “handful” of inquiries involving Citigroup right now.

Citigroup’s internal controls questioned

The investigation is reportedly focusing on Citigroup Inc (NYSE:C)’s internal controls. Officials want to know if holes in those controls added to the fraud which allegedly occurred in Mexico. Just as they questioned the controls at other banks, they are now turning their focus on Citigroup’s controls and whether the bank ignored warning signs about money laundering.

Citigroup Inc (NYSE:C) also faces an investigation by the enforcement division of the Securities and Exchange Commission into the same matter. The bank has reportedly hired a law firm to lead its own internal investigation into the reported fraud. Last month, the firm presented its findings to government officials.

Citigroup reported fraud

The bank reported in February that Banamex, its Mexican division discovered what appears to be fraud in connection with an oil services company. Citigroup Inc (NYSE:C) said at least one of its employees in Mexico processed falsified documents which enabled the company to receive a loan which it won’t be able to repay. Until now though, it has not been reported that federal authorities had opened a formal investigation.

Citigroup Inc (NYSE:C) has continued to be under the government’s and regulators’ microscopes for some time. The Federal Reserve ruled last week that the bank could not raise its dividend. That caused questions about just how reliable Citigroup’s projections are.

The bank also disclosed recently that Massachusetts federal prosecutors are also investigating its financial controls. They reportedly subpoenaed the bank and are considering whether it didn’t have the right controls to keep its clients from laundering money.

Sterne Agee downgrades Citigroup

The federal investigations have already triggered at least one analyst downgrade. In a report dated April 3, 2014, Sterne Agee analysts Todd Hagerman and Robert Greene downgraded Citigroup Inc (NYSE:C) from Buy to Neutral and lowered their estimates. They don’t specific mention the DealBook article, but they do talk about the previously revealed investigation.

In their downgrade report, they cited “recent capital plan failure, heightened regulatory risk and slowing earnings growth.” The analysts said although shares of Citigroup Inc (NYSE:C) are still “inexpensive,” they don’t see any potential catalyst coming up which could serve to move the stock higher. In addition, they lowered their earnings per share estimate for this year by 10%, bringing it from $5 to $4.50 a share. They also lowered their 2015 estimate from $5.50 to $5.30 a share.

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