Citigroup (C) Downwardly Adjusts Third Quarter Earnings
Shares of Citigroup Inc. (C) were trading down -0.75 or -1.41 percent to $52.40 per share in pre-market trading on Friday, after the company announced it was downwardly adjusting its third quarter earnings due to increased legal costs. Citigroup stock closed at $53.15 per share, up +0.51 or +0.97 percent in Thursday's regular trading session.
Citigroup announced it was cutting its third quarter profit by $600 million due to an increase in "legal accruals . The company released earnings of $1.07 per share on October 14th, which were revised down to $0.88 after yesterday's adjustment.
In the company's press release, Citigroup stated that, "The increase resulted from rapidly-evolving regulatory inquiries and investigations, including very recent communications with certain regulatory agencies related to previously-disclosed matters. The financial impact lowers Citis' third quarter 2014 net income from $3.4 billion to $2.8 billion.
Citigroup is among a number of banks and financial institutions currently being investigated for their dealings in the foreign exchange market. The worldwide probe into foreign exchange market manipulation is being conducted by the U.K.'s Financial Conduct Authority, the U.S. Justice Department, the CFTC and the Swiss Competition Commission.
Citigroup said it was cooperating with the investigation, which has been ongoing for months now, and had already put aside a substantial amount to settle outstanding lawsuits. According to some sources, UK and U.S. regulators were fast tracking the settlement talks but did not expect any significant progress before the end of the year.
Earlier this year, Citigroup cut its fourth quarter earnings for 2013 in half, in the wake of a scandal at its Mexican subsidiary Banamex. Banamex had extended $585 million of credit to a Mexican oil services company known as OSA. The financing was for accounts receivable from the national oil company Pemex, which later informed Citigroup that the valid receivables were significantly lower than OSA's figures leading Citigroup to take a $400 million charge to its Transaction Services business in 4Q of 2013.
In a regulatory filing made yesterday, Citigroup said that the Mexican National Banking and Securities Commission had completed its review of the fraud and imposed a "corrective action that the bank must implement in addition to a $2.2 million fine.
Citigroup is among six other large banks that are hoping to come to an agreement with British regulators over their foreign exchange dealings. According to sources close to the matter, the banks are hoping to come to reach a deal with British regulators by the end of November.
Citigroup stock is trading at the higher end of its yearly range, having traded as high as $55.28 in early January. The stock appears to be range bound between $46 and $55. This morning's premarket reaction to the earnings cut has not significantly impacted the stock's price and will probably not affect the stock going forward. Nevertheless, a large penalty for the company's foreign exchange dealings may negatively impact next quarter's earnings,
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