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Citigroup close settlement Original Source Link: (May no longer be active)
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Citigroup Close to FTC Settlement
Fri Sep 6, 1:48 PM ET
By Peter Kaplan and Brian Kelleher
WASHINGTON/NEW YORK (Reuters) - Financial services giant Citigroup Inc. on Friday said it was close to settling federal charges of predatory lending and defended itself against allegations of biased stock research and back-door investment banking deals.
Citigroup is nearing a deal with the U.S. Federal Trade Commission that would require the New York-based company to pay about $200 million to settle charges against its Associates First Capital Corp. unit, a Washington source told Reuters .
Chief Executive Officer Sandy Weill and Chief Financial Officer Todd Thomson, speaking at a conference in New York, confirmed the two sides were in advanced talks, but declined to elaborate.
The agency filed suit against Associates in March 2001, accusing it of systematic and widespread abusive practices that predated Citigroup's acquisition of the company, which it bought in November 2000 for about $27 billion.
Citigroup's far-flung banking and brokerage operations have made it the target of several Congressional and regulatory investigations, ranging from the integrity of its stock research to its role in the collapses of Enron Corp. and WorldCom Inc. .
"This has been a pretty lousy period to go through," Weill said, but stressed the steps Citigroup has taken to make sure its investment banking deals and research are above board.
"We will nip the things we did wrong," he said.
Citigroup shares were up $1.27, or 4.3 percent, to $30.57 in early afternoon trading on the New York Stock Exchange ( news - web sites), well below their 52-week high of $52.18. Weill attributed the cheap price to investors blowing negative press reports out of proportion.
DEALING WITH THE FTC
The FTC suit, filed in federal court in Atlanta, also named Citigroup Inc. and CitiFinancial Credit Co. as successors to Associates, one of the nation's largest lenders in the "subprime" market for higher-rate loans to high-risk borrowers.
In its lawsuit, the FTC alleged Associates targeted people who had to borrow money to meet "emergency needs" and misrepresented the loan terms.
The lawsuit alleged Associates used deceptive marketing practices to induce consumers to refinance existing debts into home loans with high interest rates, costs and fees.
Citigroup bought Associates in November 2000 for about $27 billion in stock, boosting its consumer lending business. Dallas-based Associates was the former consumer finance arm of car maker Ford Motor Co. .
"I think we've made the right moves in how we've reorganized that business so we can make the settlement with the FTC and the lawyers and all the 50 states," Weill said.
Citigroup has said it has put in place a program to address the practices of Associates and merged the company with its CitiFinancial consumer lending unit.
In August 2001, Citigroup stopped doing business with more than 3,600 consumer finance brokers and also dropped 300 banks that sold loans to Associates.
In March, the FTC announced a $60 million legal settlement with California mortgage lender First Alliance, which regulators believed to be the largest ever accord over abusive lending at the time.
GRUBMAN TO ENRON
The two executives spent most of the presentation defending Citigroup's practices and exhorting the strength of the "one-stop" financial services model, which was created by Weill's dizzying string of acquisitions. The model has drawn some critics.
"The business model works," Thomson said. "You've got a business here that's unique in its ability to perform."
Thomson and Weill acknowledged firms had to be held to higher standards in today's cynical environment.
"We think reforms are needed in the industry. We want to participate in that and lead in that and we will do so," he said.
Salomon's allocation process for initial public offerings has been a hot topic lately, as records showed former WorldCom CEO Bernie Ebbers made around $11 million trading shares of IPOs doled out by Salomon. The bankrupt telecom company was once one of Citigroup's largest clients and very close with former telecom analyst Jack Grubman.
"We found no evidence that shares of IPOs were allocated as a quid pro quo for investment banking business," Thomson said.
Thomson also defended the research of Grubman, who resigned last month after critics said he was pressured by investment bankers to issue positive reports to win business for Salomon.
"Jack wrote what he believed and was not influenced in his independence by investment bankers," Thomson said.
Thomson also said it was "absurd" to speculate that Citigroup had any advance knowledge of WorldCom's $7.68 billion accounting scandal.
In the wake of the Enron and WorldCom debacles, Citigroup declines to do business with companies that do not publicly disclose how certain deals will affect their balance sheets.
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