Damage control

10 May 2004 By Rob Cox Follow @rob1cox

With that, and an increase in litigation reserves, Citi’s bubbleera practices look set to cost shareholders about $9.3bn in total. This is an unfortunate finale to Sandy Weill’s legacy. But fighting it in the courts would probably cost even more.

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Citigroup said it has settled classaction lawsuits stemming from its involvement in WorldCom's bankruptcy, resulting in a $2.65bn payment, or $1.64bn after tax.

Of that, $1.46bn is earmarked for WorldCom bondholders and $1.2bn for shareholders, according to New York State comptroller Alan G. Hevesi, the lead plaintiff.

In addition, the world's largest financial company said it will increase its reserves to cover future litigation costs, resulting in a $4.95bn charge in the second quarter.

All told, the settlement and increased reserves add up to about $9.3bn before taxes for its involvement in a handful of Wall Street scandals, including the implosion of Enron, WorldCom and allegations of spinning IPOs to preferred parties.

Charles Prince, chief executive, called the WorldCom settlement an insurance policy against potentially higher losses stemming from a $54bn damages suit that was set to be heard by a court today and could have been brought to a jury trial.

The total aftertax charge for the settlement and the increase in litigation reserves will be $4.95bn, or $0.95 per share, and will be taken in the second quarter of 2004. The company's litigation reserve for these matters following payment of the WorldCom settlement will be $6.7 billion on a pretax basis.

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