NEW YORK >> Citigroup became the first financial institution to quantify its potential damages from a massive settlement with securities regulators, saying yesterday that it will take a charge of $1.5 billion against its fourth-quarter earnings. Citigroup to take
$1.5 billion charge
By Eileen Alt Powell
Associated PressThe nation's largest financial institution said most of the charge will go toward covering the cost of last week's settlement over allegations of biased stock analysis as well as related lawsuits and fallout from the Enron scandal.
Citigroup was among 10 commercial banks, investment banks and brokerage houses that agreed Friday to pay millions in penalties to settle allegations that its stock analysts misled investors and that potentially valuable shares in initial public offerings were used to leverage future business.
Citigroup chairman and chief executive Sanford I. Weill said in a telephone conference with analysts that he hoped the fourth-quarter charges would put the issues to rest.
"The year 2002 has been a very difficult one for our company and our industry," Weill said. "We're glad to have this behind us."
Weill said the massive charge would not be a serious financial setback for the bank and he predicted double-digit growth in 2003.
Citigroup shares fell $1.57, or 4.2 percent, today to close at $36.11 on the New York Stock Exchange.
Citigroup said it would take $1.3 billion in charges, or 25 cents a share, "for the cost of this (regulatory) settlement and toward estimated costs of the private litigation related to the matters that were the subject of the settlement." The figure also includes money to cover eventual regulatory and court verdicts related to Citigroup's dealings with the collapsed energy trading company Enron.
In addition, Citigroup will increase its reserves by $200 million, or 4 cents a share, against possible losses in the troubled power industry and in its operations in Argentina.
Citigroup did not give a further breakdown, but Prudential Securities analyst Michael Mayo estimated that about $900 million of Citigroup's fourth-quarter charges were earmarked for the potential costs of private litigation related to Enron and $400 million for conflict-of-interest probes.
"It is not clear whether the legal reserve established by the company will be sufficient, (since) it does not cover attorney fees or potential litigation costs for WorldCom and potentially other situations," Mayo wrote in a note to investors.
He lowered his estimate of Citigroup's earnings for this year to $2.55 from $2.85 and for next year to $3.20 from $3.30. Mayo has a "sell" rating on Citigroup stock.
Despite the size of the write-offs, all the major ratings agencies -- Fitch Ratings, Moody's Investors Service and Standard & Poor's -- reaffirmed their ratings on Citigroup debt.
In last Friday's settlement, Citigroup agreed to the largest payout -- $300 million in penalties for its Salomon Smith Barney brokerage unit, $75 million toward independent research and $25 million for investor education.
Other institutions participating in the five-year, $1.43 billion settlement include Bear Stearns, Credit Suisse First Boston, Goldman Sachs, Merrill Lynch and J.P. Morgan Chase.
Weill and Todd S. Thomson, executive vice president for finance, declined to estimate the possible cost of shareholder lawsuits related to analyst conflicts and other issues.
They said it could be five years or more before the cases are resolved.
"We feel we have substantial defenses to the private litigation," Thomson said.
