NEW YORK (TheStreet) -- Citigroup (C) on Tuesday disclosed a surprising jump in legal costs, but analysts see a light at the end of the tunnel for the giant bank.
Citigroup and other big banks like Bank of America (BAC) and JPMorgan Chase (JPM) have between them paid out an estimated $184 billion in fines for bad behavior, since 2009.
Speaking at a Goldman Sachs conference Tuesday, Citigroup CEO Michael Corbat said the $2.7 billion legal charge would largely resolve costs related to alleged wrongdoing tied to foreign exchange trading, money laundering and LIBOR manipulation, which he called "the big things for us that remain out there" in the "heightened legal and settlement environment" following the 2008 financial crisis.
Citigroup shareholders weren't thrilled with the announcement. They sold Citigroup shares but then bought them back shortly afterward. Still, Citigroup shares were down roughly 1% on Tuesday.
But the news is actually quite encouraging, according to Keefe, Bruyette & Woods analyst Brian Kleinhanzl. He had been expecting foreign exchange legal costs to reach $2.7 billion on their own.
"It seems like they were able to cover more litigation issues with that charge so it certainly is positive," Kleinhanzl said.
The analyst was also encouraged by Citigroup's disclosure of $800 million so-called "repositioning," including layoffs, branch closings and the like.
Kleinhanzl called the big charge an "acceleration," which "removes the slow drip of repositioning that investors have been seeing over the past three years." In short, another positive.
In a research note Tuesday, RBC Capital Markets analyst Gerard Cassidy also viewed the announcement as positive.
"While today's news was not expected, we believe that any further legal provisions associated with these issues will be manageable," he wrote.
Cassidy already has an "outperform" rating on Citi, but Kleinhanzl still has concerns over capital requirements and Citigroup's outsized exposure to emerging markets, where growth has been slowing, vs. big bank peers such as JPMorgan Chase and Bank of America.
Also on Tuesday, the Federal Reserve released new details on extra capital that must be set aside by systemically important banks, including Citigroup. Kleinhanzl argued a more than 3% total surcharge for Citi, or 1% above international standards adopted by the Basel Committee on Banking Supervision, would be viewed negatively by investors. The Fed said the overall surcharge (include what is required by Basel) would range from 1.0% to 4.5%, but it did not disclose requirements for individual banks.