Citigroup Inc. (C) is again making headlines for landing into another legal mess. Recently, Citibank, the banking unit of the company, has been sued by Lehman Brothers Holdings Inc. for wrongly confiscating nearly $2.5 billion, which was transferred by Lehman just before its bankruptcy filing in 2008.
Currently, Lehman is pursuing a liquidation plan and will likely pay 18 cents per dollar to its creditors. However, about $2 billion that it has so far gathered is actually pledged to Citi. Hence, Lehman is trying to trim down or reject the claim from Citi so that it can pay more to the other creditors.
The spokesperson for Citi stated that the company will fight the lawsuit as Lehman’s action is not justified. Further, Citi also commented that Lehman has no right to scrap its assets. Moreover, the company had withheld $2.5 billion to protect it and its shareholders from future losses.
This is not the only litigation case that Citi is fighting against Lehman. In June 2011, Citi settled a lawsuit related to the European unit of Lehman. The company had agreed to release about $2.5 billion worth of assets that were in its custody. Also in March 2011, another lawsuit was filed by Lehman’s brokerage unit against Citi. The lawsuit is seeking to recover more than $1.3 billion in cash and other assets from the company.
Like other big Wall Street banks such as Bank of America Corporation (BAC), Goldman Sachs Group, Inc. (GS) and JPMorgan Chase & Co. (JPM), Citi has been buckled under the weakness in the wider economy and the fundamental pressures on the banking sector. The increasing number of lawsuits could dent the financials of all these banks in 2012.
Currently, Citi retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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