Citigroup to Take $1.5-Billion Charge

Citigroup Inc. said Monday that it set aside $1.5 billion this quarter to settle claims that it misled customers with biased stock research and to cover loan losses.

The provision includes $200 million in additional reserves for bad loans, a $400-million payment to settle regulatory investigations of Wall Street conflicts of interest in stock research and funds for related lawsuits.

Despite the charge, the world’s largest financial services company will still report 2002 net income that’s greater than that of any other company, U.S.-based or foreign, Chief Executive Sanford Weill said.

Citigroup is the first of several banks expected to reduce earnings after Friday’s announcement of a $1.4-billion settlement between state and federal regulators and the 10 largest securities firms over research conflicts. Concerns about regulatory investigations and litigation have helped push Citigroup shares down 20% this year, the largest annual decline in a decade.

“The increase in the legal reserve should give investors some solace that they’re not going to have to think about this for a while,” said Steve Wharton, who helps manage $60 billion for Loomis Sayles Inc. that includes Citigroup shares.

Citigroup faces at least 62 lawsuits tied to its research practices, according to regulatory filings.

The charge will reduce Citigroup’s fourth-quarter earnings by 29 cents a share. On average, analysts had expected the bank to earn 75 cents a share, according to Thomson First Call.

Goldman Sachs analyst Richard Strauss lowered his fourth- quarter profit forecast for Citigroup to 45 cents a share from his previous estimate of 74 cents. Strauss expects Citigroup to earn $2.61 a share for 2002, or about $13.2 billion. The bank earned $14.1 billion in 2001.

The write-off announcement ends a year in which Citigroup confronted mounting loan losses in Argentina, the energy industry and elsewhere, in addition to regulatory inquiries over its business with Enron Corp. and into its stock research.

The reserves may not ultimately be enough to cover the entire cost of settling private litigation, analysts said.

In the 1990s, Prudential Financial Inc., for example, ended up paying about three times as much as it had estimated to settle regulatory charges and investor lawsuits alleging that its Prudential Securities Inc. brokerage subsidiary fraudulently sold $8 billion of limited partnerships during the 1980s.

New York securities lawyer Mark Gardy said the government’s investigation of the banks will result in the disclosure of documents and other evidence that will support lawsuits. Gardy is suing several investment banks alleging fraud.

Citigroup shares fell 46 cents to $37.68 on the New York Stock Exchange.