Citigroup reduced its earnings for last year by US$235 million on Friday, saying it was a victim of fraud committed by a Mexican oil services company to secure hundreds of millions of dollars in short-term loans.
The US bank is seeking to recover the missing funds with the help of Mexican authorities.
The bank said that the oil services company — Oceanografia S.A. de C.V., or OSA — overstated by US$400 million the business it was doing with Mexico’s state-owned oil company Petroleos Mexicanos (Pemex). OSA used falsified invoices as collateral for US$585 million in loans from Citigroup’s Mexican unit, Banamex, but after an investigation, Citigroup could only verify US$185 million of invoices, it said.
Citi said that it believes the case is isolated, and it is moving to recover the money and identify anyone involved in the fraud.
Mexican authorities said they have taken control of OSA to help ensure Citi recoups the funds.
“We are exploring every available option to recoup the misappropriated funds and we will be relentless in pursuing their recovery,” Citigroup CEO Michael Corbat said on Friday.
One of the criticisms of Citigroup has been that it is so big, with so many businesses around the world, that it cannot possibly stay on top of all of them. It gets more than half of its revenue from outside the US.
It appears that invoices from OSA were falsified to represent that Pemex had approved them, according to a memo from Corbat to employees on Friday.
A worker at Banamex processed them, Corbat wrote. It is not clear how many people were involved, he wrote.
He said Citi is doing a “rapid review” through Banamex, and all of Citi, of programs similar to the one involved in this case.
Corbat was a banker and a Citi lifer when he was named CEO in October 2012.
The hope was that he would scrutinize Citi’s operations in each country and make sure this sort of thing did not happen, independent banking analyst Nancy Bush said.
“I think that there is still a great reservoir of goodwill toward Michael Corbat,” she said.
The fraud in Mexico does not completely disrupt Citi’s prospects, “but I don’t think you can have too many of these.”
She said Citi might argue that Corbat’s vigilance helped bring the fraud in Mexico to light.
Citi learned on Feb. 11 that OSA had been barred from getting more contracts with the Mexican government. OSA was doing work for Pemex.
On Friday, Mexican Attorney General Jesus Murillo Karam said the government took control of OSA to preserve pertinent information and to ensure the company’s continued operation during the investigation, as well as to help Citigroup get its money back. Murillo said no one has been detained.