Citigroup Settles Probe of Argentine Bond Accounting

Citigroup Inc. settled U.S. regulatory claims it incorrectly valued Argentine bonds during the South American country's 2001 economic crisis, leading the company to overstate earnings that year.

Citigroup, the biggest U.S. bank by assets, consented to an order forbidding similar lapses to settle the Securities and Exchange Commission's civil complaint without fines, the agency said today. The bank didn't admit or deny wrongdoing.

``The developments in Argentina had a significant impact on Citigroup's Argentine operations,'' the SEC said. The faulty accounting for bonds, consumer loans and the sale of part of a Mexican subsidiary, ``significantly reduced the impact of these items'' on its books.

Foreign banks were among businesses hardest hit by Argentina's $95 billion bond default in late 2001 that led to a currency devaluation. Had Citigroup, which lost $2.2 billion in the tumult, accounted for losses correctly, its fourth-quarter earnings would have missed analyst estimates by 5 cents a share, the SEC said. Instead, it beat the forecasts by one cent.

``We're very pleased to see this accounting matter from six years ago resolved without fine or penalty,'' Citigroup spokeswoman Shannon Bell said.

Victor Menezes, the company's former head of emerging markets, paid $2.68 million in 2006 to settle related SEC claims he sold company stock in 2002 knowing the bank would report an unexpectedly large loss in Argentina. He didn't admit or deny wrongdoing.

`Unreasonable Assumptions'

The SEC faulted the bank for ignoring an auditor's advice when accounting for a $681 million swap of Argentine government bonds in November 2001. Believing that quoted market prices wouldn't accurately reflect the values of promissory notes, Citigroup used an alternate approach that ``incorporated several unreasonable assumptions,'' that reflected conditions before the Argentine crisis, the SEC said.

The bank also failed to note declining values on $380 million in bonds amid growing risk that the Argentine government wouldn't pay off the debt, the SEC said.

The other lapses relate to the bank's selection of exchange rates when booking the conversion of consumer loans into Argentine pesos, and Citigroup's sale of an Argentine retail bank under its Banamex Mexican subsidiary.

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.

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Citigroup Settles Probe of Argentine Bond Accounting