Citigroup's legal costs jump S$766.5 million; discloses probes into manipulation of forex markets

NEW YORK (Reuters) - Citigroup said it was setting aside an extra US$600 million (S$766,54 million) to cover legal expenses in the third quarter due to "rapidly evolving regulatory inquiries," while also disclosing that it was subject to foreign exchange market probes.

Citigroup is one of six major banks that are expected to settle with Britain's Financial Conduct Authority by mid-November over allegations that the banks manipulated foreign exchange markets.

The banks are aiming to settle for a total of around £1.5 billion or US$2.42 billion, sources have told Reuters. Barclays, another of the six banks, said earlier on Thursday that it had set aside £500 million for the third quarter to cover potential fines.

Big banks have paid billions of dollars in recent years to settle investigations into their mortgage lending, commodities and interest-rate trading, and a wide range of other activities. Authorities have broadly been trying to hold banks accountable for the excesses that led to the financial crisis.

While the legal costs have dragged down profits, weighed on share prices, and consumed managements' time at the banks, they have not forced banks to raise money by issuing shares, and are not expected to.

Citigroup, for example, is likely to make nearly US$28 billion in pre-tax profits over the next five quarters, way more than enough to cover heightened legal expenses, according to analysts at Bernstein Research.

The bank's shares fell 2 per cent to US$52.05 in extended trading after it revised down its third-quarter net income to US$2.84 billion from the US$3.44 billion it had posted on Oct. 14.

On a per-share basis, Citigroup adjusted its profit to 88 US cents for the quarter. It had earlier reported a profit of US$1.07 per share.

After announcing the additional legal expense on Thursday, Citigroup said in a quarterly filing with the Securities and Exchange Commission that its estimate of possible legal costs in excess of its litigation reserves was about US$5 billion, the same as it estimated for the end of the previous quarter and for year-end.

Citigroup faces additional possible settlements. Federal authorities are investigating possible money laundering through Citigroup's Banamex USA unit, for example. The Mexican part of the Banamex business has been beset by multiple problems in the last few years, including fraudulent loans and rogue trading.