- Citi is dropping its claims against Investcorp Credit Management, one of the Revlon creditors the bank sued in August to get back $900 million it errantly paid on behalf of the cosmetics company, according to a Wednesday court filing.
- Citi, in a statement seen by Bloomberg, said it is "pleased to have these funds returned." Investcorp declined to comment to the wire service.
- A trial on the remaining claims is set for Dec. 9.
The $900 million transfer — a more-than-100-fold overpayment Citi said was meant to cover several months of accrued interest on a 2016 loan for which the bank was serving as administrative agent for Revlon — cast a spotlight on the bank's internal controls, likely serving as a linchpin in the Office of the Comptroller of the Currency's decision this month to fine the bank $400 million.
The bank said a Citi employee who was manually adjusting creditors' share of the Revlon loan selected the incorrect option, allowing the loan to be paid in full. Colleagues who were supposed to act as a safeguard also failed to catch the error, Citi said.
Citi moved to recover the money within hours, but several of Revlon's creditors refused. Brigade Capital Management, the creditor to which the largest share was owed, told Citi it couldn't return the money because it had already been disbursed to other funds, adding, in an email to the bank, that it was "not at all clear that the funds were sent as a result of 'clerical mistake.'"
Citi sued a dozen of Revlon's creditors that wouldn't return the money, and persuaded a judge to issue temporary freeze orders on nearly $412 million.
Investcorp is not the first creditor to return its share, which Citi estimated at $18.9 million, to the bank after being sued. Highland Capital Management returned $244,000 to Citi in late August, and the bank dropped its claim against the money management company, Bloomberg reported.
Other creditors are standing their ground. Brigade said the creditors were "lawfully owed every penny that was transferred by Citibank in Revlon's name," and couldn't have known the payments were made in error.
"It is not believable that a sophisticated institution like Citibank could have transferred nearly $1 billion, in the exact amount outstanding under the 2016 Credit Agreement, in error," Brigade said in an August court filing.
It may be the sophistication — or, rather, disorganization — of Citi's loan operation software that the OCC is targeting with its recent reprimand.
The bank runs a patchwork of systems that track customers and transactions. Many of Citi's business units run their own — with separate customer identification measures — and some have roots in the late 1990s. The bank said it is spending $1 billion this year on improving its risk management frameworks and controls, adding that it decided last year to replace its loan operation software. However, that transition is not complete.
Citi, in its August court filing, blasted Brigade's refusal to return its $176 million share of the errant transfer, saying the hedge fund manager's "actions are not just unconscionable; they threaten the integrity of the administrative agency function and the trust in the global banking system."