Citi slashes earnings by $235m after Mexico unit fraud
American bank Citigroup has announced that it will lose an estimated $235m (£140m) on its full-year earnings for 2013 "as a result of a fraud recently discovered in its subsidiary in Mexico."
The financial impact will lower Citi’s 2013 net income from $13.9bn to $13.7bn.
The announcement concerned $585m of short-term credit that was extended to Oceanografia (OSA). OSA is an oil services company that had been a supplier to Mexico's state-owned oil company, Pemex.
Chief executive Michael Corbat commented:
Although our inquiry into this fraud is continuing, we have been responding forcefully over the past week by assessing the overall exposure to Citi, coordinating with law enforcement, pursuing recovery of the misappropriated funds, and seeking accountability for anyone involved.
The company said in a statement:
OSA has been a key supplier to Petróleos Mexicanos ("Pemex"), the Mexican state-owned oil company. Pursuant to the program, Banamex extended credit to OSA to finance accounts receivables due from Pemex. As of December 31, 2013, Banamex also had approximately $33 million in either outstanding loans made directly to OSA or standby letters of credit issued on OSA’s behalf.
On February 11, 2014, Citi learned that OSA had been suspended from being awarded new Mexican government contracts. Upon learning of this suspension, Citi, together with Pemex, commenced detailed reviews of their credit exposure to OSA and of the accounts receivable financing program over the past several years.
As a consequence of these reviews, on February 20, 2014, Pemex asserted that a significant portion of the accounts receivables recorded by Banamex in connection with the Pemex accounts receivable financing program were fraudulent and that the valid receivables were substantially less than the $585 million referenced above.