May 27, 2004
Citigroup Agrees to Pay $70 Million to Settle Lending Inquiry
Citigroup Inc. announced today that it had reached a settlement in an investigation of its lending practices and that it was selling its holdings in a Saudi bank.
Citigroup, the world's biggest financial services company, announced in London that it intends to sell its remaining 20 percent stake in Samba Financial Group, ending a presence in Saudi Arabia that began in 1955.
In Washington, the Federal Reserve said that Citigroup has agreed to pay $70 million to settle accusations that its CitiFinancial Credit Company subsidiary had violated federal fair lending laws and attempted to mislead bank examiners.
In a three-paragraph statement, the Federal Reserve said CitiFinancial was required to pay restitution to some subprime and home mortgage borrowers.
The fine total may be reduced by up to $20 million, depending on the amount of restitution that is actually made to borrowers, the Fed said.
"This provides closure to an examination of the U.S. CitiFinancial branch network the Federal Reserve began in 2001," Charles Prince, Citigroup's chief executive, said in a statement.
"CitiFinancial has taken a leadership position over the last three years in increasing consumer protection in the consumer finance industry."
Citigroup said the civil money penalty and restitution amounts would have "no material" impact on the second quarter earnings of its consumer group.
The sale of Citigroup's remaining 20 percent stake in Samba to the Saudi government's Public Investment Fund will have a positive effect on earnings, the company said.
In a statement, the bank said that as a result of the sale, it will realize an after-tax gain of $760 million, or 15 cents a share, in the second quarter.
The sale of Citigroup's remaining 20 percent stake in Samba, formerly known as Saudi American Bank, comes as no surprise.
Citibank first established a branch in Saudi Arabia in 1955 when it opened a bank in the Red Sea port of Jeddah. In 1966, it opened a branch in Riyadh, the capital. It operated autonomously in the country until 1980.
At that point, Saudi law changed, and required that foreign banks sell 60 percent of the business to Saudi nationals. At that point, the name of the bank was changed to Saudi American Bank.
Citi held a 40 percent stake in Samba until the early 1990's, when it sold off an additional 10 percent to Saudi nationals.
That percentage held until 1999, when Samba acquired two local Saudi banks, diluting Citi's holding to 22.8 percent.
In October 2002, Citigroup sold off 2.8 percent of its remaining share.
Even though it was a minority shareholder, Citigroup maintained managerial control of Samba until last October, when its management contract lapsed.
Last month, a Citigroup spokeswoman said Citigroup was considering seeking a charter for a new bank in Saudi Arabia.
Despite the end of its direct ties in Saudi Arabia, Citigroup continues to have widespread relationships with the country and its citizens. The company's biggest individual shareholder, Prince Alwaleed bin Talal, is a Saudi.
Citigroup has a presence in eight Arabic-speaking countries. The hub of its Middle Eastern operations is in United Arab Emirates.
In early afternoon trading on the New York Stock Exchange, Citigroup's stock was trading at $46.37, down 17 cents a share.