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Citigroup Inc revealed that it's facing a US criminal probe into the bank's foreign-exchange business and took a $600-million legal charge that forced it to restate third-quarter results.
The bank is cooperating with criminal and antitrust investigations by the Justice Department as well as inquiries by the Commodity Futures Trading Commission and regulators in Britain and Switzerland, the New York-based company said on Thursday in a regulatory filing.
Citigroup's third-quarter net income was $2.84 billion for the three months ended September 30, instead of the $3.44 billion that the third-biggest US bank reported on October 14, according to Thursday's statement.
Citigroup increased its legal reserves after discussions with the UK Financial Conduct Authority led the company to expect to pay $300 million to $400 million to settle the regulator's investigation into currency-benchmark manipulation, said a person briefed on the talks who asked not to be identified because the negotiations are private.
The increase in third-quarter legal costs, on top of the $951 million disclosed earlier this month, "resulted from rapidly evolving regulatory inquiries and investigations, including very recent communications with certain regulatory agencies related to previously disclosed matters," the company said in a separate statement.
Citigroup, led by Chief Executive Officer Michael Corbat, is among banks facing investigations by authorities on three continents over alleged rigging of currency markets, people with knowledge of the situation have said.
The FCA also is in settlement talks with JPMorgan Chase & Co., UBS AG, Barclays Plc, HSBC Holdings Plc and Royal Bank of Scotland Group Plc, people with knowledge of the negotiations have said. The FCA plans to reach some agreements in November, the people said.
Guilty Pleas
U.S. prosecutors are pressing to bring charges against a bank for currency-rate manipulation by the end of the year, and actions against individuals probably will follow in 2015, people familiar with the probe said earlier this month. The Justice Department may seek guilty pleas, including from at least one U.S. firm, one of the people said.
More than 25 traders, including Citigroup's Rohan Ramchandani, have been fired, suspended or put on leave since allegations of currency-benchmark manipulation emerged last year.
'Global Settlement'
Other banks have increased legal reserves amid the foreign-exchange investigations.
JPMorgan's $1.01 billion third-quarter legal expense was tied "in large part" to the currency probes, Chief Financial Officer Marianne Lake said on Oct. 14. UBS, Switzerland's biggest bank, set aside 1.84 billion Swiss francs ($1.93 billion) for litigation provisions in the third quarter and said this week it's in talks with the Justice Department's antitrust and criminal divisions.
Deutsche Bank AG, Germany's largest lender, set aside 894 million euros ($1.13 billion) for litigation. Its CFO, Stefan Krause, said this week that the currency investigation isn't as far along as other regulatory matters.
The probes into allegations that traders rigged foreign-exchange benchmarks could cost banks as much as $41 billion to settle, Citigroup analysts led by Kinner Lakhani said this month.
"Extrapolating European and, more importantly, U.S. penalties from a previous global settlement suggests to us a total potential global settlement on this key issue," the analysts wrote.
Shares Decline
Citigroup fell 1.9 percent to $52.12 in extended trading yesterday in New York after disclosing the criminal probe. The shares rose 2 percent this year through the close of regular trading, trailing the 7.7 percent advance for the 85-company Standard & Poor's 500 Financials Index.
Yesterday marks at least the second time this year that Citigroup has restated financial results amid allegations of wrongdoing. In February, the bank lowered 2013 profit by $235 million after reporting a $400 million fraud at its Mexico unit involving loans to oil-services firm Oceanografia SA.
In March, Citigroup said it's cooperating with U.S. authorities after Banamex USA, part of the Mexico unit, received subpoenas related to compliance with the Bank Secrecy Act and federal anti-money-laundering rules.
