Cleaning Up Citi After Currency Rigging Yields Alarming Pain-Gain Ratio

NEW YORK (TheStreet) -- Citigroup  (C) is more focused than ever on ensuring employees comply with global securities laws after paying $2.5 billion in penalties over foreign-exchanging rigging, about 2,500 times the amount of unlawful gains.

"The value that we generated from the illegal conduct in foreign exchange was order of magnitude about $1 million," Citigroup President James Forese said during a presentation at the Morgan Stanley financials conference this week. "The misconduct of some our employees has been hugely painful to the institution and to shareholders."

Last month, Citigroup and JPMorgan Chase  (JPM) were hit the hardest of four banks, including RBS (RBS) and Barclays (BCS), that pleaded guilty to manipulating the dollar-euro exchange, the world's biggest currency market. As part of its settlement with the Department of Justice and the Federal Reserve, Citigroup agreed to pay $925 million in fines and $342 million in civil penalties. In November, the bank agreed to pay a total of $1.02 billion in settlements with the U.S. Commodity Futures Trading Commission, the U.S. Comptroller of the Currency and the U.K. Financial Conduct Authority.

The misbehavior has been "incredibly damaging and costly," Forese said. "We're spending a lot of time on improving the conduct of our employees and making sure that they perform.

The bank said in November that it had already begun making changes to systems, controls and monitoring processes "to better guard against improper behavior." Citigroup's reforms are part of its agreement with regulators, one of whom issued a stern warning to financial institutions when the most recent settlement was announced.

"The Department of Justice, under my watch, will not hesitate to file criminal charges for financial institutions that re-offend," U.S. Attorney General Loretta Lynch said in a statement. "Banks that cannot and will not clean up their act need to understand the non-prosecution agreements and deferred prosecution agreements carry very real consequences and will be enforced."

Citigroup's penalties come on the heels of $7 billion in fines levied by the Justice Department and Federal Deposit Insurance Corp. last summer in claims the bank misled investors about the quality of subprime mortgages and related securities prior to the financial crisis of 2008.

Among Citigroup's other risk-management priorities, Forese said, are maintaining a robust cyber-security program and limiting potential costs from the Greek debt crisis as much as possible.

"We can hopefully earn the trust of clients that we are going to protect better their information, protect the identity of individuals better and put more resources at it than some of the smaller firms," Forese said. "Threats come from all over the place."

 

As for Greece, Forese said Citigroup has a long history with the Mediterranean country but has made large divestitures lately and is well prepared for turbulence.

Last June, Citigroup announced the sale of its consumer-banking business in Greece, which carried about $600 million in assets, as well as its Diner Club of Greece credit card operations to Alpha Bank. The company's 730 employees and ATM network in Greece were also transferred to Alpha.

"We've been trying to keep our primary exposures to Greece as low as we can while still being able to serve our core clients that are doing business in Greece," Forese said.

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