Citigroup Finds More Fraud in Mexico

NEW YORK (TheStreet) -- Citigroup  (C), already reportedly under criminal investigation over fraud in its Mexican operations, said Monday it discovered a second incident in the unit known as Banamex.

As with the previously disclosed case, the fraud was tied to a supplier to Pemex, Mexico's state-owned oil company. Responding to a reporter's question during a press conference to discuss first quarter earnings, Citigroup CFO John Gerspach declined to name the supplier, though he said the fraud involved less than $30 million.

"This supplier has already begun to return the funds advanced and we expect to receive full restitution," Gerspach said.

Citigroup found the second case of fraud during a review of "approximately 1100 similar supplier programs across the world covering about $14 billion worth of receivables," Gerspach said. He added the bank "found no other incidences of fraud other than with this one supplier program with Pemex."

Gerspach said Citigroup is "conducting an investigation as to the entirety of the control structure in Mexico, but we don't have anything to report on that at this point in time."

The previously-disclosed instance of fraud fraud involves a $585 million loan Citigroup made to an oil services company called Oceanografia that was secured by accounts receivable from Pemex. Gerspach reported "$165 million in incremental credit costs," related to the two instances combined.

The issues in Mexico have led analysts including CLSA's Mike Mayo to reiterate suggestions the bank shoulod look at selling its Banamex unit. However, many Citigroup watchers argue Banamex is an integral part of Citigroup. Due to the previous success of the unit, its former leader, Manuel Medina Mora was promoted to run Citigroup's global consumer businesses.


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