Citigroup Faces $136 Million in Fines Over Risk Management Failures – Huge Challenges for CEO Jane Fraser

Regulators have imposed $136 million in fines on Citigroup for failing to rectify persistent deficiencies in its controls and risk management, posing a significant challenge for CEO Jane Fraser as she works to overhaul the major New York bank.

The Federal Reserve and the Office of the Comptroller of the Currency (OCC) announced the penalties late Wednesday, just ahead of Citigroup’s second-quarter earnings report. They cited Citigroup’s insufficient progress on issues identified in a 2020 consent order, which mandated the bank to improve its enterprise-wide risk management, compliance risk management, data governance, and internal controls.

Acting Comptroller of the Currency Michael J. Hsu noted that although the bank’s board and management had made meaningful overall progress and had taken steps to simplify the bank, there were still persistent weaknesses, particularly concerning data management.

Citigroup will pay $75 million to the OCC and $60.6 million to the Federal Reserve, in addition to the $400 million previously paid under the 2020 consent order. CEO Jane Fraser acknowledged the situation, stating that the progress was not expected to be linear, and expressed confidence in achieving the necessary transformation for the firm. She emphasized Citigroup’s commitment to investing whatever is necessary to comply with the consent orders.

Following the announcement, Citigroup’s stock fell by more than 1% in after-hours trading, although it has risen over 26% since the beginning of the year, outperforming other major banks. The regulatory action comes as Citigroup attempts a significant transformation aimed at boosting its stock price and shedding years of inefficiency.

Fraser, who assumed her role in March 2021, initiated a restructuring plan about two years ago. This plan focuses on serving large multinational corporations, divesting unprofitable segments, and improving operational efficiency. As part of this overhaul, Citigroup has withdrawn from consumer banking in various regions, cut jobs, and reorganized business lines, marking what Fraser described as the most significant change in nearly two decades.

This strategy effectively reverses the 1990s-era “financial supermarket” model, which offered a wide array of services to consumers, businesses, and governments. In a bid to reassure investors of its progress, Fraser and other executives highlighted the bank’s multinational services division, which facilitates global money transfers for corporations, in a series of presentations last month.

During these presentations, CFO Mark Mason described 2024 as an “inflection year” and projected a revenue increase of at least $6 billion and a reduction in expenses by $500 million by 2026. Both Fraser and Mason acknowledged ongoing efforts to strengthen regulatory and compliance functions, noting that progress in some areas had been slow and emphasizing intensified efforts in regulatory processes and data remediation.

Recently, regulators also identified weaknesses in the “living wills” submitted by Citigroup and three other major banks, outlining how they would wind down operations in a crisis. For Citigroup, the weaknesses related to resolution data integrity and data management issues first noted in its 2021 plan. The FDIC classified Citigroup’s plan as having a serious “deficiency,” while the Fed described it as a less severe “shortcoming.”

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