Regulators hit Citigroup ( C ) with $136 million in fines for failing to address longstanding deficiencies in controls and risk management, a setback for CEO Jane Fraser as she tries to turn around the giant New York bank.
The Federal Reserve and the Office of the Comptroller of the Currency announced the action late Wednesday, just two days before Citigroup reports its second-quarter earnings.
Regulators said Citigroup made insufficient progress on problems originally identified in a 2020 consent order, which required Citigroup to address deficiencies in enterprise-wide risk management, compliance risk management, data governance and controls. internal.
“While the bank’s board and management have made significant progress overall, including taking the necessary steps to simplify the bank, some persistent weaknesses remain, particularly with respect to data,” said Acting Comptroller of the Currency Michael J Hsu.
Citigroup will pay $75 million to the OCC and $60.6 million to the Fed, on top of the $400 million Citigroup previously paid as part of the 2020 consent order.
Fraser responded on Wednesday with her own statement, saying that “we have always said that progress would not be linear and we have no doubt that we will be successful in getting our firm where it needs to be in terms of our transformation. “
The CEO added that “we are committed to spending what is necessary to address our consent orders.”
Shares of Citigroup fell more than 1% in after-hours trading on Wednesday. Its stock is up more than 26% since the start of the year, outperforming all other big bank rivals.
The slap from regulators comes as Citigroup tries to make a dramatic transformation aimed at reviving its stock price and removing a decades-old bloat.
The overhaul under Fraser, who took over as chief in March 2021, began roughly two years ago as she sought to focus the company on serving large multinational corporations, shed what was not profitable and operate more efficiently. more efficient.
This meant withdrawing from consumer banking in various parts of the world. It also meant cutting jobs and reorganizing business lines as part of an internal restructuring that Fraser called the “most significant” change in the way Citigroup has operated in nearly two decades.
The strategy succeeded in taming a 1990s-era “financial supermarket” that claimed to provide all the services needed by consumers, businesses and governments.
Its latest effort to convince investors it was moving in the right direction came last month after Fraser and other bank executives made a series of investor presentations focused primarily on its multinational services division, which helps corporations money moves around the world.
CFO Mark Mason in his presentation referred to 2024 as an “inflection year” and said that by 2026 Citigroup plans to increase its full income by at least $6 billion while reducing its expenses with it at least 500 million dollars.
But both Fraser and Mason also acknowledged at the June event that the bank still had work to do to strengthen its regulatory and compliance functions.
“We recognize that there are places where progress has been very slow, so we have intensified our efforts in areas such as regulatory processes and correcting relevant data,” Fraser said in June.
Another regulatory blow came days later when regulators found weaknesses in “living wills” filed by Citigroup and three other big banks detailing how the lenders would shut down if something catastrophic happened.
The shortfalls in the 2023 plans occurred when banks were asked to simulate a softening of their derivatives and trading positions in two scenarios with different timeframes.
In Citigroup’s case, regulators said the weakness related to a deficiency identified in its 2021 plan “in terms of resolution data integrity and data management issues.”
The FDIC said it found Citigroup’s plan weak enough to be considered a more serious “deficiency,” while the Fed stuck with the less severe “deficiency” rating.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto and other areas in finance.
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