Citigroup reports fraud in Mexico unit, lowers 2013 results

Fri Feb 28, 2014 2:43pm EST
 
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By David Henry and Elinor Comlay

NEW YORK/MEXICO CITY (Reuters) - Citigroup Inc (C.N: Quote) said on Friday that it has discovered fraudulent loans in its Mexico subsidiary and that employees may have been in on the crime.

The bank wrote down bogus loans to a company whose assets Mexican law enforcement officials have now seized, cutting Citigroup's 2013 profit by $235 million to $13.67 billion. Citigroup Chief Executive Michael Corbat called the incident a "despicable crime" and said the bank believes it was an isolated episode.

The bad loans were made to Mexican oil services company Oceanografia OCNGR.UL, a contractor for the nation's state-owned oil company, Pemex PEMX.UL.

Oceanografia borrowed from Citigroup's Mexican unit, Banco Nacional de Mexico or Banamex, using expected payments from Pemex as collateral.

In recent weeks, Banamex discovered that Oceanografia appeared to have falsified invoices to Pemex that were collateral for loans, Corbat said in a separate memo to employees. The bank wrote down about $400 million of loans backed by the bogus invoices.

On February 11, Oceanografia was suspended by Pemex's internal control group from receiving any government contracts for 21 months and 12 days, a serious blow for a company that receives about 97 percent of its revenue from Pemex. Citigroup said it began looking at its exposure to Oceanografia after the suspension.

Mexico's attorney general's office said on Friday it was investigating Oceanografia for possible crime, and that it had seized the company's assets and appointed an administrator to salvage whatever business is left. Calls for the press representative at Oceanografia and an email to an investor relations official were not returned.

Corbat said in the statement that Banamex is exploring legal options. Criminal actions "may allow us to recover damages," he added.   Continued...

 
A Citi sign is seen at the Citigroup stall on the floor of the New York Stock Exchange, October 16, 2012. REUTERS/Brendan McDermid