Citigroup is on the hook for almost $US900 million ($1.1 billion) in mistaken payments it sent out, according to a US judgment on Monday (local time) that called the debacle “one of the biggest blunders in banking history”.
- Citigroup sent out almost $1.1 billion to financial companies that were parties to a term loan to Revlon
- It intended to send out just $10 million worth of interest payments
- After realising the mistake, Citigroup was rebuffed by 10 financial companies that believed Revlon was repaying the full loan early, a judge said
The case centres on payments totalling some $US500 million ($644 million) Citigroup sent in August last year to 10 financial companies that were parties to a term loan to cosmetic company Revlon.
Citi, the loan’s administrative agent, mistakenly paid back the $US900 million principal to the members of the lending consortium, rather than interest payments totalling $US7.8 million ($10 million).
Citi quickly realised the error but was rebuffed the following day by the lenders, which included Allstate Investment and Greywolf Loan Management.
The companies thought Revlon was repaying the loan early, said US District Judge Jesse Furman.
Because the defendants in the case believed “in good faith and with ample justification” that the payments were for the full Revlon loan, “the defendants’ clients are entitled to keep the money,” Judge Furman said in a 105-page ruling.
Firms cannot do what they want with the cash yet
Citi said it would appeal the decision.
“We strongly disagree with this decision and intend to appeal,” a Citi spokeswoman said in an email.
“We believe we are entitled to the funds and will continue to pursue a complete recovery of them.”
The judge said the lenders’ assumption about repayment made sense.
“Given a choice between assuming that Revlon had paid off the 2016 term loan early — as borrowers sometimes do — and assuming that Citibank or Revlon had mistakenly transferred over $900 million — something no bank may have ever done before, and may never do again — it would have borderline irrational to choose the latter,” the judge added.
Judge Furman pointed in his ruling to a 1991 case, which “unambiguously” settled that New York law holds that “banks making wire transfer payments to bona fide creditors bear a risk of loss should a mistake occur”.
Still, Judge Furman noted the 10 firms were “not yet necessarily free to do with the money what they want.” noting the possibility of appeal.