Citigroup is lowering its fourth-quarter and full-year financial results after discovering fraud at a Mexican subsidiary.
The U.S.-based bank said Friday that it had extended $535 million in credit to Mexican oil services company Oceanografia SA de CV through its Banco Nacional de Mexico unit, also known as Banamex. Oceanografia has been a key supplier to Mexican state-owned oil company Petroleos Mexicanos.
Citigroup says its 2013 net income will be reduced by $235 million to $13.7 billion from $13.9 billion. It believes the fraud is an isolated incident.
Citigroup Inc. said it found out earlier this month that Oceanografia had been suspended from receiving new Mexican government contracts. Citi and Petroleos Mexicanos then reviewed their exposure to Oceanografia.
Petroleos said that it found fraud in the accounts receivables recorded by Banamex. Invoices were falsified to show that Pemex had approved the work, and then were processed by a Banamex worker, Citi CEO Mike Corbat said in statement Friday. The invoices were then processed by a Banamex worker.
"We have been responding forcefully over the past week by assessing the overall exposure to Citi, coordinating with law enforcement, pursuing recovery of the misappropriated funds, and seeking accountability for anyone involved," Corbat said.
"We are exploring every available option to recoup the misappropriated funds and we will be relentless in pursuing their recovery," Citigroup CEO Michael Corbet said Friday.
One of the criticisms of Citigroup has been that it is so big, with so many businesses around the world, that it can't possibly stay on top of all of them. It gets more than half of its revenue from outside the U.S.
It appears that invoices from OSA were falsified to represent that Pemex had approved them, according to a memo from Corbat to employees on Friday.
A worker at Banamex processed them, Corbat wrote. It's not clear how many people were involved, he wrote.
He said Citi is doing a "rapid review" through Banamex, and all of Citi, of programs similar to the one involved in this case.
Citigroup shares have fallen in recent weeks on concerns that slowing growth in emerging markets may reveal bad loans, as well as increase the risk of trading losses.
Citigroup's stock fell slightly in premarket trading.