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Citigroup Inc (C) Mulling Closure of Banamex USA Unit

Citigroup Inc (NYSE:C) may close its unit – Banamex (Banco Nacional de Mexico) USA, amid  increased regulatory probe over the unit’s money-laundering controls. The news was reported by The Wall Street Journal.

Citing people familiar with the matter, the news agency stated that Citigroup has put forward the idea of the possible closure of Banamex USA as a part of settlement talks with the regulators. While regulators are not seeking closure of the unit, they are looking for a payment of over $100 million from Banamex USA to resolve the allegations.

For over a month, Banamex USA has been in discussions with the Federal Deposit Insurance Corporation (“FDIC”) and the California Department of Business Oversight for a probable settlement. However, the settlement is unlikely to occur soon.

Based in California, Banamex USA is engaged in providing banking services to individuals and small businesses in the U.S. and Mexico. Citigroup took over Banamex USA with the acquisition of the Mexican bank, Banamex in 2001. However, the USA unit has been entangled in regulatory probes since the past few years.

Regulators had earlier identified that Citigroup had inadequacies over its anti-money laundering (AML) compliance at Banamex USA. In 2012, FDIC and the California regulators filed a consent order asking Banamex USA to improve the processes of high-risk customer identification. In 2013, Citigroup entered into a consent order with the Federal Reserve to take steps to improve company-wide anti-money laundering compliance efforts.

As regulators are beefing up their investigations over banks’ AML measures, several banks are retreating from the business of moving money to and from emerging markets. In this light, Citigroup’s plan to close Banamex USA seems a strategic one.

We remain encouraged by the company’s efforts towards gradually resolving legal issues. Though a probable settlement of Citigroup’s Banamex USA with the FDIC and California regulators will bring some reprieve to the bank, this wouldn’t end the other related legal woes. Notably, Banamex USA had received grand jury subpoenas from the United States Attorney’s Office for the District of Massachusetts and requests for information from several other regulators including Financial Crimes Enforcement Network – a bureau of the U.S. Department of Treasury.

Citigroup currently carries a Zacks Rank #3 (Hold).

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