Citi using Revlon snafu to fix risk management

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A Citigroup executive detailed the steps it will take to clean up risk management and controls at an industry conference Monday, the same day a news report said the company is poised to be hit with federal enforcement action for failing to fix those programs in recent years.

On the bank’s to-do list: implement a new internal oversight structure, spend more money on data and technology to drive automation and reduce manual work and incorporate a cultural change in which all employees, regardless of business line or region, feel a responsibility to get it right.

“I cannot emphasize enough there is no greater priority for the entire management team than getting to what we would characterize as a best-in-class risk-and-control environment,” Chief Financial Officer Mark Mason said during the virtual 2020 Barclays Global Financial Services Conference. “Simply put, fundamentally transforming our operating environment and strengthening our infrastructure risks and controls is a strategic priority for the firm.”

"There is no greater priority for the entire management team than getting to what we would characterize as a best-in-class risk-and-control environment,” Citi CFO Mark Mason says.

Mason’s comments come one month after court filings revealed the New York company — which last week announced that CEO Michael Corbat will retire in February — is trying to recover nearly $900 million it accidentally paid to lenders of cosmetics company Revlon. The mistaken payment is one of multiple missteps over the years that have called into question Citi’s internal controls.

Mason on Monday reiterated Citi's explanation that the Revlon error is the result of “manual steps” taken in the bank’s loan processing system. He said Citi has been “accelerating [its] investment in infrastructure and controls,” spending more than $1 billion so far this year.

“We recognize that errors like this are unacceptable, and we also recognize that eliminating these types of manual touch points is a significant opportunity for us,” Mason said.

The Wall Street Journal reported Monday that the Federal Reserve and the Office of the Comptroller of the Currency are poised to hit Citigroup with a consent order that would require it to improve its risk management technology and procedures so that it would be more adept at catching problematic transactions, risky trades and other threats. The looming enforcement action might have accelerated the timetable for Corbat’s departure, the story said. It’s unclear whether a fine would be involved.

The Fed and OCC declined to comment for this article.

Last week, in an internal memo to colleagues announcing his retirement, Corbat said the bank has “launched significant, multiyear investments in [its] infrastructure as part of [its] push to make strengthening [its] risk and control environment a strategic priority for the firm.”

Jane Fraser, Citi president and CEO of the global consumer bank, will succeed him.

“This will be a multiyear effort, and I believe it is best for the firm for my successor to lead this important work from the beginning,” Corbat wrote about Fraser.

In a separate memo, Fraser said Citi needs to “transform” its risk and control systems.

“We need to ensure that we have a culture which demands excellence in these areas because it will ultimately make us more competitive and improve our ability to serve our customers and clients,” she wrote.

Fraser, who joined Citi 16 years ago, will be the first woman to lead a major U.S. bank.

In the meantime, lots of eyes will be on Citi’s loan-loss reserves for the third quarter. The company set aside $7 billion in the first quarter and $7.9 billion in the second quarter to cover loans that may sour as the coronavirus pandemic continues to play out across the United States.

Mason said he expects “some type of build” this quarter, but lower than the two prior periods.

“I would say again that the quarter is not over and this is something that we’re continuing to work through in real time,” he said. “So we’ll see how that evolves over the coming weeks.”

Citigroup’s shares fell 5.59% on Monday to $48.15.

Hannah Lang contributed to this article.

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