Citigroup has joined a raft of global financial institutions that have declared a substantial rise in their legal spend, up by 33% in the first quarter of 2014 compared to the same time last year, according to the bank’s financial report released yesterday (14 April).
Legal and related operating expenses stood at $945m for the first three months of 2014, compared with $710m for the equivalent period in 2013. The 2014 figure has also increased sharply when compared with the last quarter of 2013, up by 17% from $809m.
According to the report by Citi, which has 200 million customer accounts and does business in more than 160 countries and jurisdictions, a decrease in operating expenses of 1% to $12.1bn was ‘driven by efficiency savings and the overall decline in Citi Holdings assets, partially offset by higher regulatory and compliance costs, legal and related expenses and repositioning charges in the current quarter.’
The financial institution instructs the majority of the Magic Circle firms, including Linklaters, Freshfields Bruckhaus Deringer and Clifford Chance, as well as others in the top 10 such as Herbert Smith Freehills.
The disclosure comes after both Morgan Stanley and Deutsche Bank earlier this year attributed poorer performances in the final quarter of 2013 in part to rising litigation costs, with Morgan Stanley in January seeing its net income drop 78% in the last quarter of 2013 due to legal costs and weak fixed income trading.
In its report, Morgan Stanley declared that ‘the current quarter includes $1.2bn of additions to legal reserves for mortgage-related matters, specifically litigation and investigations related to residential mortgage-backed securities and the credit crisis’.
Meanwhile, Frankfurt-headquartered Deutsche Bank announced it had suffered a pre-tax loss of €1.2bn alongside a 16% drop in group revenue to €6.6bn in its quarterly results compared to the year before, partly attributing its performance to full-year litigation expenses of €2.5bn ‘as the bank put many major legacy issues behind it’.
In January, it announced litigation expenses amounting to €528m for the fourth quarter alone.
Speaking of these latest results, Citigroup’s chief executive officer, Michael Corbat said: ‘Despite a quarter that was difficult for our company, we delivered strong results. Both our consumer and institutional businesses performed well and we grew both loans and deposits while holding the line on our expenses. We reduced our deferred tax assets more than any other quarter since the crisis and drove Citi Holdings closer to break even.’