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Citigroup Seen Finding Smaller ‘Concerns’ After Banamex

Citigroup Inc., the U.S. lender investigating a $400 million fraud at its Mexico unit, found unspecified “concerns” in three other instances that involved small holdings, according to Sanford C. Bernstein & Co.

Each of the portfolios flagged by a global review of supplier-finance programs involved less than $10 million, Bernstein’s John McDonald wrote in a report today, citing a meeting with Citigroup Chief Financial Officer John Gerspach. The review covered $14 billion in collateral, McDonald wrote.

Gerspach said his New York-based bank “found concerns of some nature in three other portfolios,” according to McDonald, who called them “manageable” given the size of the firm’s earnings and balance sheet. The analyst didn’t specify what the bank found or give locations. Mark Costiglio, a Citigroup spokesman, declined to elaborate.

“While we continue to investigate what took place in Mexico, we are working to identify any areas where we need to strengthen our controls through stronger oversight or improved processes,” Costiglio said in an e-mailed statement.

Citigroup began a “rapid review” last month after finding invoices for short-term loans made to a Mexican oil-services firm were falsified. The department under scrutiny relies on humans to handle paperwork and check the validity of hundreds of invoices used as collateral, one current executive has said.

The bank disclosed the fraud at Grupo Financiero Banamex SA on Feb. 28 and cut last year’s previously reported profit by $235 million. Citigroup, ranked third by assets among U.S. lenders, has called the discrepancy “an isolated incident.”

Management couldn’t say whether the Banamex episode would affect the outcome of the Federal Reserve’s annual stress tests, McDonald wrote. The results come in two parts on March 20 and March 26 and help determine whether Citigroup can increase dividends and stock buybacks.

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