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Regulators fine Citigroup $136 million in setback for CEO Jane Fraser
Regulators slapped Citigroup (W) with $136 million in fines for failing to address long-standing deficiencies around controls and risk management, a setback for CEO Jane Fraser as she tries to turn around the giant New York bank.
The Federal Reserve and the Office of the Comptroller of the Currency announced the action Wednesday night, just two days before Citigroup reports its second-quarter earnings.
Regulators said Citigroup had made insufficient progress on issues initially identified in a 2020 consent order, which required Citigroup to address deficiencies in its enterprise risk management, compliance risk management, data governance and internal controls.
Jane Fraser, CEO of Citigroup. (Tom Williams/CQ-Roll Call, Inc via Getty Images) (Tom Williams via Getty Images)
“While the bank’s board and management have made significant progress overall, including taking necessary steps to simplify the bank, certain persistent weaknesses remain, particularly with respect to data,” said Acting Comptroller of the Currency Michael J. Hsu.
Citigroup will pay the OCC $75 million and the Fed $60.6 million, in addition to the $400 million previously paid by Citigroup as part of the 2020 consent order.
Fraser responded on Wednesday with his own statement, saying that “we have always said that progress would not be linear and we have no doubt that we will be successful in taking our company where it needs to be in terms of transformation.”
The CEO added that “we are committed to spending whatever is necessary to comply with our consent orders.”
Citigroup shares fell more than 1% in after-hours trading on Wednesday. Its stock has risen more than 26% since the start of the year, outpacing all other major banking rivals.
The warning from regulators comes as Citigroup tries to undertake a dramatic transformation aimed at reviving its share price and erasing decades of inflation.
The transformation under Fraser, who took over as chief in March 2021, began about two years ago as she tried to focus the company on serving large multinational corporations, shed what was unprofitable and operate more efficiently.
That meant pulling back from consumer banking in several parts of the world. It also meant cutting jobs and reorganizing business lines as part of an internal restructuring that Fraser called the “most consequential” change in the way Citigroup operated in nearly two decades.
The strategy amounted to dismantling a 1990s “financial supermarket” that claimed to offer every service needed by consumers, businesses and governments.
Its most recent effort to convince investors it was moving in the right direction came last month, when Fraser and other bank executives gave a series of investor presentations focused largely on its multinational services division, which helps corporations move money around the world.
The story continues
Acting Comptroller of the Currency Michael Hsu. REUTERS/Evelyn Hockstein (REUTERS / Reuters)
CFO Mark Mason, in his presentation, referred to 2024 as an “inflection year” and said that by 2026 Citigroup plans to increase its annual revenue by at least $6 billion while reducing its expenses by at least $500 million.
But both Fraser and Mason also acknowledged at the June event that the bank still had work to do to bolster its regulatory and compliance functions.
“We recognize that there are places where progress has been too slow, so we have stepped up our efforts in areas such as regulatory processes and related data correction,” Fraser said in June.
Another regulatory blow came days later when regulators found weaknesses in “living wills” sent by Citigroup and three other major banks detailing how creditors would liquidate themselves if something catastrophic happened.
Shortcomings in the 2023 plans occurred when banks were asked to simulate a reversal of their derivatives and trading positions under two scenarios with different time frames.
In Citigroup’s case, regulators said the weakness had to do with a deficiency identified in its 2021 plan “regarding addressing data integrity and management issues.”
The FDIC said it considered Citigroup’s plan weak enough to be considered a more serious “deficiency,” while the Fed maintained the less severe “deficiency” rating.
David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrencies, and other areas of finance.
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