Citigroup’s $900m accidental payment headed for the courts
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It will sound familiar. You’re doing an electronic transfer for $10 and just stop short of sending $1,000 by mistake. Sometimes bungled transactions like this go through — but rarely on the scale of last week’s $900m payments blunder by Citigroup, which paid debt investors roughly 100 times more than it was supposed to.
The problem here is not just the size of the giant bank’s mistake. A history of bad will between Citi and some of the recipients is making it hard to undo the lapse.
If you gave someone an unintended windfall through an erroneous bank transfer, you’d have a reasonable expectation that they would recognise the mistake and it would be quickly and amicably undone. But simply asking for the money back isn’t working for Citi. So it has reached for the lawyers.
How Citi made the hapless payments remains unclear. According to its court filing, they were meant to be interest on loans issued by cosmetics group Revlon, for which the US bank says it was the “administrative agent”. Instead, it paid out amounts that add up to the full principal sum of the loan.
This colossal excess came out of Citi’s own funds. It’s not as if Revlon, struggling with the pandemic, had suddenly decided to repay its debts early.
Citi says there are going to be human and technological errors now and then. Sure, people make mistakes. “Accidents will happen” became a cliché because there’s an inevitability to such things. But nearly $1bn, in multiple transactions, from an institution of Citi’s sophistication? Fallibility and gremlins are why systems and procedures need to be robust. When those checks don’t work, that’s an institutional failing — especially at a bank capitalised at $105bn.
Citi now faces a battle to get all the money back. Some $175m is attributable to a single hedge fund, Brigade Capital Management. Citi quotes an e-mail from Brigade suggesting that, regardless of any errors made, it sees legal grounds to keep the payments to set them against its exposure to Revlon.
On Tuesday, Brigade told a judge it doesn’t have the funds as they went to its end clients, Bloomberg News reported. The judge has granted Citi a freeze on the cash for now.
Suing Revlon
Meanwhile, a wider group of creditors represented by UMB Bank, part of UMB Financial, is now suing Revlon and Citi, arguing the cosmetics group is in ...
The problem here is not just the size of the giant bank’s mistake. A history of bad will between Citi and some of the recipients is making it hard to undo the lapse.
If you gave someone an unintended windfall through an erroneous bank transfer, you’d have a reasonable expectation that they would recognise the mistake and it would be quickly and amicably undone. But simply asking for the money back isn’t working for Citi. So it has reached for the lawyers.
How Citi made the hapless payments remains unclear. According to its court filing, they were meant to be interest on loans issued by cosmetics group Revlon, for which the US bank says it was the “administrative agent”. Instead, it paid out amounts that add up to the full principal sum of the loan.
This colossal excess came out of Citi’s own funds. It’s not as if Revlon, struggling with the pandemic, had suddenly decided to repay its debts early.
Citi says there are going to be human and technological errors now and then. Sure, people make mistakes. “Accidents will happen” became a cliché because there’s an inevitability to such things. But nearly $1bn, in multiple transactions, from an institution of Citi’s sophistication? Fallibility and gremlins are why systems and procedures need to be robust. When those checks don’t work, that’s an institutional failing — especially at a bank capitalised at $105bn.
Citi now faces a battle to get all the money back. Some $175m is attributable to a single hedge fund, Brigade Capital Management. Citi quotes an e-mail from Brigade suggesting that, regardless of any errors made, it sees legal grounds to keep the payments to set them against its exposure to Revlon.
On Tuesday, Brigade told a judge it doesn’t have the funds as they went to its end clients, Bloomberg News reported. The judge has granted Citi a freeze on the cash for now.
Suing Revlon
Meanwhile, a wider group of creditors represented by UMB Bank, part of UMB Financial, is now suing Revlon and Citi, arguing the cosmetics group is in ...
