(Bloomberg) – Citigroup Inc.’s Accidental Payment of about $ 900 million to the lenders of Revlon Inc. has to do with control on two fronts – in private talks with regulators and a public battle before the court.
Behind the scenes, the bank has begun briefing watchdogs including the Currency Controller’s Office and the Federal Reserve on how it mistakenly misappropriated so much money, according to people familiar with the matter, who asked not to be identified to discuss confidential conversations. On Monday, the bank pursued Brigade Capital Management LP, trying to recover a share of the lavish funds.
Citigroup, the third largest U.S. bank, has not provided a public statement on how the ‘operational error’, as its lawsuit called it, happened. While mistakes are irreversible in a sector that moves trillions of dollars every day, the massive overpayments have paid off on Wall Street and raised questions about protections in the firm’s franchise that has syndicated loans.
Citigroup was preparing to resign as the governing body for the Revlon loan when last week’s accident caused about $ 900 million to the lenders’ accounts amid a bitter fight between the cosmetics company and creditors. While some chose to return the money to Citigroup, others, including Brigade, at least initially refused to return the money.
Bank regulators will not really regulate the fight over cash. Rather, their focus will be on making sure that any declines at the company in New York cannot be repeated and that they do not reveal deeper problems that are a stability threat. Representatives of the bank and regulators declined to comment.
‘Crystal-Clear Evidence’
Citigroup told a federal court in New York that it intended to make interest payments on behalf of Revlon, but transferred amounts more than 100 times larger. Brigade was intended to receive interest on loan principal of $ 174.7 million, according to the complaint. It received $ 176.2 million instead and refused to return the funds “despite crystal clear evidence that the payments were wrong,” said Citigroup, noting that the money belonged to the bank, not Revlon.
A Brigade representative declined to comment on the lawsuit.
Brigade and other lenders including HPS Investment Partners and Symphony Asset Management are embroiled in a fight with Revlon over its debt restructuring tactics. The loan trades for less than 30 cents on the dollar, signaling that investors have low hopes of getting a normal recovery under normal circumstances.
Citigroup denied the controversy of Brigade, the money should be considered as a refund. Brigade “should know that a surprise return of main character could not be made,” Citigroup said. “And it was well aware that virtually no company, let alone a distressed retail and consumer company like Revlon, would ever make such a substantial return while dealing with the major financial consequences caused by the ongoing pandemic.”
Citigroup has maintained in recent years that, even if it is issued in other areas, it has internal systems and oversight. Amid the coronavirus pandemic, the company has said it is focusing on investments to improve the bank’s security and health.
“We will continue to manage this with a sharp emphasis on our risk management,” Chief Executive Officer Michael Corbat said last month. “We continue to invest in our infrastructure to improve our safety, health and controls to ensure we have an indisputably strong and stable institution.”
The case is Citibank NA v Brigade Capital Management, 20-cv-6539, U.S. District Court, Southern District of New York (Manhattan).
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