Citi, Barclays Settle Lawsuit - Analyst Blog

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The recent resolution of the lawsuit on Thursday between Citigroup Inc. ( C ) and Barclays PLC ( BCS ) did not have an impact on its shares in the trading session last Friday. The suit was related to Barclays' failure to uphold an indemnity during the financial crisis in 2008. The settlement was filed in a US District Court in Manhattan but neither party disclosed the terms of the deal.

In May 2013, Citigroup filed a complaint with the U.S. District Court, New York, claiming that indemnity payments of roughly $141 million were due to be paid by Barclays. The compensation was related to losses incurred by Citigroup on foreign exchange settlement services provided to a unit of Lehman Brothers instantly after its bankruptcy.

The case was associated with the Continuous Linked Settlement (CLS) system. The CLS is a settlement services provider for member companies in the foreign exchange market. These member companies settle transactions through CLS, which helps in mitigating settlement risks related to their trades.

Citigroup alleged that it wanted to discontinue settling trades for Lehman's brokerage unit after the latter filed for bankruptcy, as it was sustaining huge losses. However, Barclays, which was then about to buy Lehman's U.S. broker-dealer business, urged Citigroup to continue settling trades and guaranteed to indemnify for losses incurred between Sep 17 and 19, 2008.

However, Barclays failed to compensate for losses amounting to roughly $580 million. Consequently, Citigroup lowered the sum and sued Barclays for $90.8 million and additional interest and legal fees.

We believe that the settlement of the lawsuit bodes well for both companies. Citigroup will be able to recover the losses related to Lehman, which were supposed to be secured by the Barclays collateral. Barclays, on the other hand, has been plagued in recent times by litigations and tougher regulations in the U.S. and Europe. Hence, the resolution of the aforementioned case will relieve it to some extent.

At present, Citigroup has a Zacks Rank #5 (Strong Sell) while Barclays carries a Zacks Rank #3 (Hold). Some better-ranked banking stocks include BB&T Corp. ( BBT ) and The PNC Financial Services Group, Inc. ( PNC ), both of which have a Zacks Rank #2 (Buy).



BB&T CORP (BBT): Free Stock Analysis Report

BARCLAY PLC-ADR (BCS): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

PNC FINL SVC CP (PNC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CLS , BBT , BCS , C , PNC

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