In one of the biggest blunders in banking history, Citibank has lost nearly USD 500 million for a wrong transaction it did to a cosmetic company. As per a US Court ruling, Citibank won't be allowed to recover almost around USD 500 million it mistakenly paid to cosmetic company Revlon's lenders. The judgment called the debacle "one of the biggest blunders in banking history".
Recipients of money wired in error are typically required to return it. But in this case, the creditors had reasonable grounds to believe the payment was intentional, Judge Jesse M Furman of the US District Court in Manhattan wrote in his ruling.
Because defendants in the case believed "in good faith and with ample justification" that the payments were for the full Revlon loan, "defendants' clients are entitled to keep the money," Furman said in a 105-page ruling.
What is the case?
In August 2020, Citigroup sent some USD 500 million to 10 financial companies who were parties to a term loan to Revlon.
Citi, the loan's administrative agent, mistakenly paid back the USD 900 million principal to the members of the lending consortium, rather than interest payments.
Citibank, which was acting as Revlon's loan agent, meant to send about USD 8 million in interest payments to the cosmetic company's lenders.
Some lenders did return the money, but others did not.
Citibank filed a lawsuit in August seeking the return of its funds, but it still has not received USD 500 million from 10 investment advisory firms.
Citi realised the error but was rebuffed by the lenders, including Allstate Investment and Greywolf Loan Management.
Citi plans to appeal against the US Court ruling on the matter.
Furman said lenders' assumption about repayment made sense given that Revlon was known to be under financial duress due to COVID-19.
As per Forbes, shares of Citigroup are edging up 0.7% Tuesday, pushing the stock's one-year gain to about 6.5%.
