Citi Says Revlon Debacle Shows Loan Operations Need Overhaul

(Bloomberg) -- Citigroup Inc. said an internal analysis of its accidental transfer of $900 million to a group of lenders has reinforced the need to upgrade loan operations.

The firm cited the incident in its annual proxy filing on Wednesday that details executives’ pay, noting it created a “significant franchise concern” for the company. The bank sent the payment in August to a group of lenders to the troubled cosmetics giant Revlon Inc.

The firm mentioned the incident when it gave a “3” rating to Paco Ybarra, head of its institutional clients group, and Michael Whitaker, head of enterprise infrastructure, operations and technology, on their management of overall risk and control. The firm rates its executives on a scale of 1 to 5, with 1 signifying “exceptional” and 5 being “not effective.”

Citigroup was already upgrading systems for loan operations when the wayward payment was made. Since the incident, it has spent much of the intervening months embroiled in an embarrassing court battle trying to recoup the roughly $500 million lenders still haven’t returned.

Citigroup, which earlier this month installed Jane Fraser as chief executive officer, last year also entered into a pair of consent orders with the Office of the Comptroller of the Currency and the Federal Reserve after both regulators found deficiencies in underlying systems and technologies.

“The board has focused on a smooth transition for Jane as she takes the reins, and we believe that has put her in an excellent position to address the challenges facing the company,” the lender’s board, led by Chairman John Dugan, said in the proxy filing. “First among these, as the consent orders described above made painfully clear, is the need to fundamentally change the company’s risk and control environment.”

The board created a committee to help oversee the regulatory work. The firm also announced it is now using a new compensation tool to evaluate 400 of its top executives who have the ability to expose Citigroup to material amounts of risk.

Shareholder Proposal

Citigroup’s board recommended that shareholders reject a proposal brought by CtW Investment Group that would require the bank to analyze how it adversely affects communities of color and other non-White stakeholders.

CtW said the lender has a “conflicted history” addressing racial injustice, arguing that many checking fees and minimum account balances often disproportionately impact people of color.

Citigroup last year pledged more than $1 billion to help close the racial wealth gap. The lender has also said it hopes to increase the share of U.S. Black employees in its assistant vice president through managing director levels to at least 8% from 6% in 2018.

“Citi believes it is already addressing the intent of this proposal -- to help Citi identify, prioritize, remedy and avoid adverse impacts on non-White stakeholders and communities of color -- thereby rendering the proposal unnecessary,” the board said. “While we disagree with the overall approach in this proposal, we are completely aligned with its stated goal of addressing racial inequity in the financial sector.”

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