Citigroup Fined $136M Over Long-Standing Internal Control, Risk Managment Issues

Citigroup faced a significant setback on Wednesday as government regulators imposed a $135.6 million fine on the bank for inadequate progress in addressing long-standing internal control and risk management issues.

It's a huge challenge to CEO Jane Fraser, who has committed to streamlining and simplifying Citigroup, according to Associated Press.

The fines were levied by the Federal Reserve and the Office of the Comptroller of the Currency (OCC).

Both agencies criticized Citigroup for not fulfilling the requirements of a 2020 consent order aimed at rectifying the bank's risk and control deficiencies. Although some improvements were noted, the regulators identified persistent significant issues that necessitated further penalties.

"Citibank must see through its transformation and fully address in a timely manner its longstanding deficiencies," said Acting Comptroller of the Currency Michael J. Hsu.

This fine is in addition to the $400 million penalty Citigroup paid when the original consent order was signed in 2020. The current penalties include $61 million payable to the Fed and $75 million to the OCC.

In her response, Fraser admitted that the bank's progress has been slower than anticipated but remained optimistic about reducing its risk profile.

"We've always said that progress wouldn't be linear, and we have no doubt that we will be successful in getting our firm where it needs to be in terms of our transformation," she said.

Once a "too big to fail" institution, the bank's near collapse and subsequent government bailout necessitated a significant reduction in its balance sheet, divestiture of non-essential businesses, and exit from non-dominant financial markets.

During the 1990s and early 2000s, Citigroup expanded aggressively through acquisitions and mergers, aiming to become a comprehensive financial conglomerate.

However, these acquisitions brought about fragmented internal controls and incompatible software systems, leading to ongoing regulatory concerns about the bank's complexity and internal communication failures.

In June, banking regulators rejected Citigroup's "living will," a critical document outlining how the bank could be safely dismantled in the event of failure.

Fraser's tenure as CEO has been marked by a commitment to overhaul the bank's internal controls, which she said involves thousands of employees, billions of dollars, and several years of effort.

While there have been successes, such as the divestment of parts of Citigroup's consumer banking operations, including the planned spin-off of Banamex in Mexico, challenges remain.

Investors continue to value Citigroup shares below those of its Wall Street counterparts like JPMorgan, Goldman Sachs, and Morgan Stanley, partly due to the ongoing costs associated with fixing its internal control issues.