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Citigroup lowers 4Q13, 2013 earnings on Mexico woes.

BANKING AND CREDIT NEWS-March 4, 2014--Citigroup lowers 4Q13, 2013 earnings on Mexico woes


4 March 2014 -- New York-based financial services firm Citi (NYSE: C) said that it is adjusting downward its 4Q13 and full year 2013 financial results from those reported on January 16 by an estimated USD 235m after-tax (USD 360m pre-tax) as a result of a fraud recently discovered in its subsidiary in Mexico.

The financial impact will lower Citi's 2013 net income from USD 13.9bn to USD 13.7bn.

Citi's 2013 Annual Report on form 10-K, to be filed with the US Securities and Exchange Commission on March 3, 2014, will reflect these adjustments. Citi said it also intends to release a revised Fourth Quarter of 2013 Quarterly Financial Data Supplement reflecting these adjustments.

As of December 31, 2013, Citi, through Banco Nacional de Mexico had extended approximately USD 585m of short-term credit to Oceanografia S.A. de CV a Mexican oil services company, through an accounts receivable financing program.

OSA has been a key supplier to Petroleos Mexicanos the Mexican state-owned oil company.

Under the programme, Banamex extended credit to OSA to finance accounts receivables due from Pemex.

As of December 31, 2013, Banamex also had approximately USD 33m in either outstanding loans made directly to OSA or standby letters of credit issued on OSA's behalf.

On February 11, 2014, Citi learned that OSA had been suspended from being awarded new Mexican government contracts. Upon learning of this suspension, Citi, together with Pemex, commenced detailed reviews of their credit exposure to OSA and of the accounts receivable financing program over the past several years.

As a consequence of these reviews, on February 20, 2014, Pemex asserted that a significant portion of the accounts receivables recorded by Banamex in connection with the Pemex accounts receivable financing programme were fraudulent and that the valid receivables were substantially less than the USD 585m referenced above.

Based on Citi's review, which included documentation provided by Pemex, Citi estimates that it is able to support the validity of approximately USD 185m of the USD 585m of accounts receivables owed to Banamex by Pemex as of December 31, 2013.

This USD 185m consists of approximately USD 75m supported by documentation in Pemex records and approximately USD 110m of documented work performed that was still going through the Pemex approval process.

The difference of an estimated USD 400m has been charged to operating expense in Transaction Services in the fourth quarter of 2013, with an offset to compensation expense of approximately USD 40m associated with the Banamex variable compensation plan.

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Publication:M2 Banking & Credit News (BCN)
Geographic Code:1MEX
Date:Mar 4, 2014
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