Dive Brief:
- Citi has reached a settlement with Revlon’s creditors over the $500 million portion of an errant August 2020 payment the creditors kept, according to a letter filed Friday in New York federal court.
- All 10 creditors have signed agreements with Citi, which, if performed as anticipated by the parties, will terminate the litigation, lawyers representing the bank and the lenders said in a letter to a federal judge.
- Roughly three-quarters of the payments, which Citi testified it wired by mistake, have been returned to the bank, according to the letter. The bank will return certain coupon interest and principal amortization amounts to lenders that have returned the mistaken payments, the lawyers wrote.
Dive Insight:
The settlement closes out an embarrassing chapter in Citi’s history.
In what Citi CEO Jane Fraser described as a “massive, unforced error,” the bank mistakenly transmitted $900 million to creditors on a 2016 Revlon loan, instead of the $7.8 million interest payment it intended to send.
That payment represented a full payoff of the makeup giant’s $900 million loan that wasn’t due until 2023.
Although some asset managers returned about $385 million of the funds, 10 refused, leading to a two-year legal battle.
A federal judge overseeing the case called Citi’s mistake “one of the biggest blunders in banking history,” and ruled in February 2021 that the 10 creditors — including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management — were not required to return the money.
Judge Jesse Furman of the U.S. District Court for the Southern District of New York cited precedent from a 1991 case in which New York’s highest court ruled that when a third party mistakenly sends money from a debtor to a creditor, the creditor can keep the payment if it didn’t realize it was sent in error and didn’t make any misrepresentations — a principle called discharge for value.
Citi’s battle to recoup the funds took a turn in the bank’s favor in September, when Furman’s ruling was vacated by the 2nd U.S. Circuit Court of Appeals.
While a settlement may finally put the issue to bed, the bank’s error has not escaped the attention of regulators.
The Federal Reserve and Office of the Comptroller of the Currency (OCC) ordered Citi in October 2020 to improve its risk management, data and internal controls, and fined the bank $400 million — presumably in part because of the Revlon blunder.
The Fed and the Federal Deposit Insurance Corp. (FDIC) demanded last month that Citi address a shortcoming in its living will. The regulators gave the bank until Jan. 31 to submit a “mapping document” aimed at resolving weaknesses related to data quality and data management concerns previously identified in the October 2020 enforcement action.
