Citigroup Inc. (NYSE:C) is riding the general wave of sector and market pessimism today, with the stock down a whopping 2.03% about two hours into trading. But aside from the overall negative investor outlook that’s undoubtedly affecting Citi’s performance, there are two additional factors at play.
Sweet little lies?
Last Friday, news broke that Citigroup Inc. (NYSE:C) might have to go back into court to refight an old case that could cost it $8.3 billion.
In 2007, Citi helped British private-equity fund Terra Firma purchase music-publishing and recording giant EMI. Terra Firma later filed suit, saying that Citi lied about a competitive bidder, which caused Terra Firma to grossly overpay for EMI. Citi won, but now a federal appeals judge has overturned the verdict, and the superbank is potentially on the hook again for $8.3 billion.
In other news, American Banker reported Monday that Citigroup Inc. (NYSE:C) had settled a suit with International Fund Management of Luxembourg, DekaBank of Germany, the City of Richmond, and other institutional investors over losses incurred during the housing boom relating to share purchases. No payout amounts were disclosed.
Foolish bottom line
The financial crisis is the gift that keeps on giving. Bank of America Corp (NYSE:BAC) is in another major fight right now over soured mortgage-backed securities its Countrywide Financial business issued during the housing boom, putting B of A on the hook for potentially tens of billions of dollars.
It’s highly unlikely Citi’s settlement over equity purchases will amount to anything more than a fraction of that, but any mention of crash-related litigation is enough to send at least a small shudder through Citi investors. It does me.
As for the EMI case, $8.3 billion won’t crush Citigroup Inc. (NYSE:C): It has nearly $2 trillion in assets and $31 billion in cash on hand as of the end of the first quarter. But $8.3 billion is still an amount of money to be respected, and an amount of money no investor wants to see leave the bank. At least this particular case isn’t crisis-related; there’s some comfort in that. Citi investors are happy to leave that sort of drama to Bank of America shareholders.
The markets are just plain volatile right now, as well, contributing to today’s market sell-off. Uneven economic news, along with the prospect of Federal Reserve Chairman Ben Bernanke tapering off the monthly bond purchases that are widely believed to have supported the country’s nascent economic recovery, is spooking investors.