May 14, 2014 / 2:13 PM / 3 years ago

Citigroup fires 11 more in fraud probe of Banamex unit-memo

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

NEW YORK/MEXICO CITY (Reuters) - Citigroup Inc (C.N) has fired four senior executives and seven other employees who failed to do enough to protect the bank from a fraud at its Mexican unit Banamex, according to an internal memo sent to staff on Wednesday.

The 11 people who were terminated came after an employee was fired in February, around the time the bank announced it had discovered fraudulent loans at Banamex. The bank believes the first staff member was directly involved, while the other terminated employees did not do enough to protect the bank from the fraud, Citigroup Chief Executive Officer Mike Corbat wrote in the memo obtained by Reuters.

The firings underscored the extent of Citigroup’s problems at Banamex, where it has discovered some $565 million in fraudulent loans, suffered losses on loans made to homebuilders in Mexico, and fired a pair of rogue traders.

Banamex faces a U.S. criminal investigation of possible violations of money-laundering laws, a source has told Reuters, as well as probes by U.S. and Mexican authorities into the fraudulent loans.

The latest firings included employees across business lines, Corbat said in the memo. Of the four managing directors let go, two were business heads in Mexico. Further disciplinary action could be taken against other employees both inside and outside of Mexico as the investigation continues, according to the memo.

Citi said in late February it had discovered some $400 million in fraudulent loans at Banamex, prompting the bank to reduce its 2013 profit by $235 million.

The bad loans were made to Mexican oil services company Oceanografia OCNGR.UL, a contractor for Mexican state-owned oil company Pemex PEMX.UL. Oceanografia appeared to have falsified invoices to Pemex that were used as collateral for loans from Banamex, Corbat said in a memo to employees in February.

Mexican officials had raised questions about Oceanografia before. In February Pemex suspended the company from receiving government contracts for 21 months and 12 days. Later that month, Mexican authorities seized Oceanografia’s assets and named an administrator to salvage the remaining business.

A spokesman for the Mexican government entity administering Oceanografia declined to comment on Wednesday on the invoices.

Citi has since said it found additional fraudulent loans linked to Oceanografia and another oil services company it has not identified, bringing total losses to $565 million. The bank is working with lawyers at Shearman & Sterling to investigate fraud in its financing programs, a person familiar with the probe said.

Mexico’s bank watchdog is drawing up new rules designed to prevent frauds like the one at Oceanografia from happening in the future, the agency said on Tuesday.

Citi’s difficulties in Mexico are the latest instance of its chronic troubles over the last decade and a half, including high costs and risk control failures.

CEO Corbat told executives earlier this year that reducing expenses is the top priority. While the bank showed progress with ongoing “core expenses” in the first quarter, it continued to be hit by high legal costs.

Citi shares fell nearly 1 percent to $47.01.

Reporting by David Henry in New York and Elinor Comlay in Mexico City; Editing by Dan Wilchins, Jeffrey Benkoe and Bernadette Baum

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