Citigroup Inc. C continues to struggle with fixing its regulatory problems. United States Senator, Elizabeth Warren, urged the Office of the Comptroller of the Currency (“OCC”) to impose growth limitations on the company. This was first reported by Reuters on Thursday.
Citigroup's continued problems with data, controls and management are evidence of the fact that the bank has become “too big to manage," and therefore, it should be subjected to constraints, argued Senator Warren in a letter to Acting Comptroller of the Currency, Michael Hsu.
In her letter from Oct. 2, 2024, the Senator pleaded with the Acting Comptroller that he should take the matter to the third phase of the OCC's four-step program, designed to penalize repeated offenses by large banks. According to Warren, the OCC had only taken the first two steps-issued private warnings and implemented public enforcement orders and fines. However, now it is time to take a step further to the third phase in order to limit C’s further growth capability.
Warren slammed Citigroup for being "unable or unwilling to address its repeat and serious failures," referring to the enforcement orders that the bank has piled up over the years along with millions of dollars in fines.
Fed & OCC’s Investigations on Citigroup
Citigroup has been under investigation by the Fed and OCC multiple times, which resulted in fines amounting to millions in the last few years.
In 2020, the OCC and Federal Reserve fined Citigroup $400 million and demanded a plan to overcome long-standing risk management and operational flaws that had led to repeated violations and penalties. In July 2024, the United States regulators penalized the bank again with a fine of $136 million for failing to make adequate progress in fixing data management issues.
In March 2023, the Federal Deposit Insurance Corporation and the OCC raised concerns over insufficient controls and risk management practices pertaining to the Bank Secrecy Act and AML requirements. However, this decade-long enforcement action against the bank was terminated by the Fed on Wednesday.
Due to these repeated violations by Citigroup, Senator Warren urged the Acting Comptroller to impose stringent restrictions that Hsu mentioned during one of his speeches in 2023 about dealing with repeat offenders. In that speech, the Acting Comptroller suggested limiting a bank’s growth, business activities or capital actions to force it to fix issues, although he noted that this would be a serious escalation in enforcement.
This wouldn’t be the first time the regulators decided to put a growth cap on a big bank. Earlier in 2018, an asset cap was imposed on Wells Fargo & Company WFC, which restricted the bank from growing beyond $1.9 trillion in assets. Though, in September 2024, WFC submitted a third-party review of its risk and control overhauls to the Fed for scrutiny and approval, per a Bloomberg report, that cited people familiar with the matter. This step marked a new phase in WFC’s ongoing efforts to address the issues that led to the imposition of the asset cap.
Citigroup’s Remedial Actions
Since taking the position as Citigroup’s chief executive officer, Jane Fraser has emphasized that the revamping of Citigroup's risk management infrastructure is the top priority for the bank. The bank has been actively investing in the transformation of its underlying technology, risk management and internal controls as part of the remediation highlighted by the OCC and Fed. These expenditures highlight the bank's commitment to correct its longstanding compliance and operational issues.
Citigroup’s Zacks Rank & Price Performance
In the past six months, shares of C have lost 0.5% against the industry’s growth of 5.3%.
Image Source: Zacks Investment Research
At present, Citigroup carries a Zacks Rank #3 (Hold).
Stocks Worth a Look
Some better-ranked stocks from the banking space are The Bank of New York Mellon Corporation BK and UMB Financial Corporation UMBF.
Estimates for BK’s current-year earnings have increased marginally in the past seven days. The company’s shares have gained 24.8% in the past six months. Currently, BK carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Estimates for UMBF’s current-year earnings have been unchanged in the past seven days. The company’s shares have jumped 22.5% in the past six months. At present, UMBF has a Zacks Rank #2.
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