Citigroup Fined $136 Million for Risk Management Failures

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Regulators have imposed a $136 million fine on Citigroup for its failure to address long-standing deficiencies in controls and risk management, marking a significant setback for CEO Jane Fraser as she attempts to revitalize the towering New York bank. The Federal Reserve and the Office of the Comptroller of the Currency (OCC) announced the punitive measure late Wednesday, just two days prior to Citigroup’s scheduled second-quarter earnings report.

The deficiencies were initially flagged in a 2020 consent order, which mandated Citigroup to rectify issues in its enterprise-wide risk management, compliance risk management, data governance, and internal controls. Although Citigroup’s board and management have made notable strides in various areas, including steps to simplify the bank, lingering weaknesses, particularly those related to data, persist, according to Acting Comptroller of the Currency Michael J. Hsu.

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Citigroup is now required to pay $75 million to the OCC and an additional $60.6 million to the Federal Reserve, supplementing the $400 million the bank had already paid under the initial 2020 order. In response, Fraser acknowledged the non-linear nature of their progress, expressing unwavering confidence in successfully transforming the firm. She reiterated Citigroup’s commitment to investing the necessary resources to meet the consent orders’ requirements.

Following this news, Citigroup’s stock dropped by over 1% in after-hours trading on Wednesday. Nevertheless, the stock has seen a more than 26% rise since the start of the year, outperforming other major banks.

These regulatory actions arrive at a critical juncture for Citigroup, which is undergoing massive transformation efforts aimed at rejuvenating its stock value and shedding the inefficiencies of previous decades. Fraser, who has been at the helm since March 2021, initiated these changes nearly two years ago. Her strategy involves steering the company towards serving large multinational corporations, divesting from unprofitable segments, and increasing operational efficiencies.

This strategic pivot required scaling back consumer banking operations in various international markets, cutting jobs, and restructuring business lines in what Fraser termed as the most significant operational change in nearly two decades. The transformation seeks to dismantle the 1990s-era “financial supermarket” model that aimed to cater to consumers, businesses, and governments alike.

Most recently, Fraser and other executives presented to investors last month with a focus on the bank’s multinational services division, which aids corporations in global money movement. During these presentations, CFO Mark Mason identified 2024 as an “inflection year,” projecting that by 2026, Citigroup would boost its annual revenue by at least $6 billion and reduce expenses by $500 million.

Despite these ambitious plans, both Fraser and Mason conceded during the June event that more work is needed to enhance the bank’s regulatory compliance functions. Fraser admitted that progress in certain regulatory areas has been slower than anticipated, prompting intensified efforts in regulatory processes and data remediation.

This latest fine follows another regulatory setback wherein Citigroup and three other major banks were found to have weaknesses in their “living wills”—plans outlining how they would orderly unwind operations in the event of a catastrophic failure. For Citigroup, the focus was on data integrity and management issues, originally spotted in its 2021 plan. The FDIC classified these deficiencies as serious enough to be termed a “deficiency,” while the Federal Reserve opted for the less severe “shortcoming” designation.

As Citigroup navigates these regulatory challenges, Fraser remains steadfast in her commitment to transforming the bank into a leaner, more focused entity capable of thriving in a highly competitive financial landscape.