Litigation issues arising from mortgage securities are far
from over for
). The company is now entangled in a lawsuit filed by Swisscanto
Asset Management AG for presenting distorted information
regarding the company's financial health between 2006 and 2009,
according to a Bloomberg report. However, the damage amount has
not been specified by Swisscanto.
The lawsuit, which was filed in the Manhattan federal court,
particularly charged Citi and its former officers and directors
of repeatedly providing misleading information to investors
related to losses arising from the company's mortgage securities.
As a result, the complaints ended up buying Citi securities
at an exaggerated price.
Notably, related to the same claims, a class-action or group
lawsuit is already pending in the Manhattan federal court.
Swisscanto, however, requested to be excepted from the class. On
the other hand, Citi planned to strongly oppose this lawsuit.
Citi, being hit hard by the impact of the financial crisis, had
to seek refuge in government bailouts to stay afloat. Its market
value significantly plummeted since the crisis and the company is
still battling the aftermath of the crisis. Citi's conduct
related to mortgage securities has been questioned several times
and the Swisscanto lawsuit has added to its woes.
However, owing to the litigation overhangs, Citi needs to engage
its resources to resolve them. This consequently increases legal
costs, compelling the company to opt for settlements. Yet, this
in turn exhausts the company's financials, which could have been
steered towards its growth initiatives, had it not been subject
to such litigations.
Citi, otherwise, boasts an impressive global footprint and
attractive core business. The company has restructured its
business and overhauled its risk management. It is reducing its
risky exposures by trimming the problem assets, which in turn
frees up capital to be invested in its core business.
Moreover, to rightsize its business and increase efficiency
across the organization, the company has recently announced
significant layoffs. While such efforts are encouraging, the low
interest rate environment, regulatory headwinds and litigation
risks remain our concerns.
BANK OF AMER CP (BAC): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
To read this article on Zacks.com click here.
Citi currently retains its Zacks #3 Rank, which translates into a
short-term Hold rating. Considering its fundamentals, we have a
long-term Neutral recommendation on the stock. Among its peers,
Bank of America Corp.
) also have a Zacks #3 Rank.