NEW YORK (TheStreet) -- Citigroup's (C) Mexico unit, Banamex, has been the subject of negative news of late and the importance of the division to the bank's overall operations is not to be underestimated.
Mexico is Citigroup's largest international market, according to a KBW report Wednesday. Since fraud at Banamex was first disclosed by Citigroup Feb. 28, shares are down nearly 2% versus a roughly 6% gain in the KBW Bank Index. Shares were down 1.43% to $47.55 Thursday afternoon, after The New York Times reported U.S. authorities have opened a criminal inquiry into Citigroup tied to the issue.
The fraud involves a $585 million loan Citigroup made to an oil services company called Oceanografia that was secured by accounts receivable from Pemex that turned out to add up to just $185 million instead of the promised $585 million, according to The New York Times' report Thursday. As part of its Feb. 28 announcement of the fraud, Citigroup revised 2013 and fourth quarter earnings downward by $235 million, including a $125 million tax write-off resulting from the loss.
While $235 million is a small number in the context of Citigroup's more than $13 billion in 2013 profits, it may be indicative of deeper cracks within the institution, which is still trying to put itself together after it required a $45 billion government bailout during the financial crisis.
"Mexico is important to Citigroup because Manuel Medina Mora operates out of there and he runs the whole consumer finance business for Citigroup worldwide so if there's real problems in Mexico City it could be well beyond what is happening in just the Banamex operation," said Rafferty Capital Markets analyst Richard Bove in an interview Thursday.