(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 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
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)