(Adds information about Medina-Mora, functions of some laid off executives, updates share price)
By David Henry and Elinor Comlay
NEW YORK/MEXICO CITY May 14 (Reuters) - Citigroup Inc has fired four senior executives and seven other employees, saying they failed to do enough to protect the bank from loan fraud at its Mexican unit Banamex, according to an internal memo sent to staff on Wednesday.
With the latest round of firings, the bank has terminated a dozen employees after learning of the Banamex fraud, underscoring the extent of Citigroup's problems at the unit. Citigroup has discovered some $565 million in loans linked to fraud at Banamex, suffered losses on loans made to homebuilders in Mexico, and fired a pair of rogue traders at the unit.
Banamex faces a U.S. criminal investigation of possible violations of money-laundering laws, a source has told Reuters, as well as probes by U.S. and Mexican authorities into the fraudulent loans.
The latest firings included employees across business lines, Chief Executive Michael Corbat said in the memo. Of the four managing directors let go, two were business heads in Mexico. Further disciplinary action could be taken against other employees both inside and outside of Mexico as the investigation continues, according to the memo.
A source close to the matter said that the executives fired in Mexico include the local business head of the bank's treasury and trade solutions group, and officials in corporate banking and risk management. The person declined to name them.
Citi said in late February it had discovered some $400 million in fraudulent loans at Banamex, prompting the bank to reduce its 2013 profit by $235 million.
The bad loans were made to Mexican oil services company Oceanografia, a contractor for Mexican state-owned oil company Pemex. Oceanografia appeared to have falsified invoices to Pemex that were used as collateral for loans from Banamex, Corbat said in a memo to employees in February.
Mexican officials had raised questions about Oceanografia before. In February Pemex suspended the company from receiving government contracts for 21 months and 12 days. Later that month, Mexican authorities seized Oceanografia's assets and named an administrator to salvage the remaining business.
A spokesman for the Mexican government entity administering Oceanografia declined to comment on Wednesday on the invoices.
Citi has since said it found additional fraudulent loans linked to Oceanografia and another oil services company it has not identified publicly, bringing total losses to $565 million. The bank is working with lawyers at Shearman & Sterling to investigate fraud in its financing programs, a person familiar with the probe said.
Mexico's bank watchdog is drawing up new rules designed to prevent frauds like the one at Oceanografia from happening in the future, the agency said on Tuesday.
When announcing that it had discovered the fraud in February, Citigroup said it had fired an employee who it believed was directly involved. Corbat said in Wednesday's memo that the 11 additional employees fired had failed to protect Citigroup from fraud.
Another employee has suffered from the bank's trouble in Mexico: Manuel Medina-Mora, co-president of Citigroup, had his pay for 2013 cut to $9.5 million from $11 million the year before. The bank said in its proxy filing that control issues at Banamex USA, a unit of Banamex, were a factor in the decline.
Citi's difficulties in Mexico are the latest instance of its chronic troubles over the last decade and a half, including high costs and risk control failures.
CEO Corbat told executives earlier this year that reducing expenses is the top priority. While the bank showed progress with ongoing "core expenses" in the first quarter, it continued to be hit by high legal costs.
Citi shares fell 0.7 percent to $47.07. (Reporting by David Henry in New York and Elinor Comlay in Mexico City; Editing by Dan Wilchins, Jeffrey Benkoe, Bernadette Baum and Andrew Hay)