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Citigroup rips off poor debtors { May 28 2004 } Original Source Link: (May no longer be active)
http://www.miami.com/mld/miamiherald/business/8778417.htmhttp://www.miami.com/mld/miamiherald/business/8778417.htm
Posted on Fri, May. 28, 2004
FINANCE
Citigroup slapped with $70M fine
In what is being called the largest civil penalty ever involving consumer law, Citigroup is fined $70 million for predatory lending practices.
BY ERIC MOSKOWITZ, VINCENT DEL GIUDICE AND JAMES CORDAHI
Bloomberg News
Citigroup, the world's largest financial-services company, was fined $70 million by the Federal Reserve for violating a U.S. law on deceptive lending, having weak controls to prevent abuses and lying to banking regulators.
Fed Reserve spokeswoman Susan Stawick said the settlement was the largest civil penalty ever involving consumer law.
The company also announced it plans to sell its 20 percent stake in Samba Financial Group, ending its presence in Saudi Arabia after almost half a century.
The fine is part of the fallout from New York-based Citigroup's $26.7 billion purchase in 2000 of consumer-finance company Associates First Capital, since renamed CitiFinancial. In September 2002, Citigroup paid $240 million to resolve Federal Trade Commission allegations that the company used misleading tactics to sell home-mortgage insurance.
''Predatory lending, or whatever you want to call it, is an extremely dicey business because it generates big profits but also infuriates regulators,'' said Richard Bove, an analyst at Hoefer Arnett Inc. in Pinellas Park. He rates Citigroup shares ''strong buy'' and said he doesn't own them.
The Fed said CitiFinancial charged a fee for home equity or mortgage insurance from both the borrower and a co-signer. Under the $70 million settlement, Citigroup said it would return $20 million to borrowers, though the amount may exceed $50 million.
The settlement is another step to ''address issues of the past,'' Citigroup Chief Executive Charles Prince said. The fine was for loans made between January 2001 and December 2002. It won't lower second-quarter earnings, Citigroup said.
Prince, 54, has set aside $6.7 billion to resolve litigation stemming from practices that cost customers money. Earlier this month, he said Citigroup would pay $2.65 billion to investors in WorldCom, the long-distance telephone company that filed the biggest bankruptcy in U.S. history. He may also have to pay for misleading investors about Enron bonds the bank helped sell, which became worthless once the energy trader collapsed.
Citigroup consented to the Fed's order without admitting any wrongdoing, the Fed said.
Separately, Citigroup said in a statement that it will sell its stake in Samba, formerly Saudi American Bank, to the Saudi government's Public Investment Fund. The sale will produce a gain of $760 million, or 15 cents a share, Citigroup said.
The New York-based company has operated in Saudi Arabia since 1955 and it ''remains deeply committed to the region and is actively exploring new business opportunities'' there, Citigroup spokeswoman Jennifer Scardino said. Citigroup divested a smaller portion of its Samba stake in 2002.
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