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Citigroup’s Banamex Debt Rating Cut by Moody’s After Loan Fraud

Citigroup Inc.’s Banamex business had ratings for creditworthiness and strength cut one level by Moody’s Investors Service, which cited the Mexico unit’s loss on a $400 million loan fraud and internal-control weaknesses.

Banamex’s long-term local-currency senior debt rating was reduced to A3 from A2, while the baseline credit assessment, a measure of the firm’s strength without government support, fell to baa2 from baa1, Moody’s said yesterday in a statement. The moves were prompted by the severity of the fraud announced three months ago, subsequent information on risk-management and auditing, and dismissals of Banamex workers, Moody’s said.

“Structural and cultural risk-management and governance issues might be broader than initially thought, and generate concerns that other lines of business may be affected as well,” Moody’s wrote. “Banamex faces the difficult task of successfully executing an overhaul of its risk-management and auditing functions.”

Citigroup said last month that it terminated 11 people for failing to prevent or discover loans to oil-services firm Oceanografia SA that were based on collateral that didn’t exist. The U.S. Securities and Exchange Commission and Department of Justice are among authorities investigating. Moody’s said it will track the outcome of probes and assess the impact on Banamex’s strength, including any damage to its risk profile, brand, market perception and business potential.

Losses on the loans caused Citigroup to cut its profit last year by $235 million. When disclosing the incident, Chief Executive Officer Michael Corbat called it a “despicable crime” and vowed to punish anyone responsible.

Mexico Attorney General Jesus Murillo Karam said May 30 that arrest warrants had been issued for people including some who have worked at Banamex, according to a transcript of a press conference in the Southeastern city of Merida. He didn’t specify the number of warrants, and declined to name people targeted or state their employment status. Citigroup and Banamex haven’t been accused of any wrongdoing.

Mark Costiglio, a spokesman for New York-based Citigroup, declined to comment on the credit rater’s statement and the warrants.

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