Citigroup Inc. recently posted first- quarter profits of more than $5 billion. In a statement, Citigroup said the payment, which amounts to $1.64 billion after taxes, will go to all WorldCom shareholders who bought stock in the telecommunications giant from April 29, 1999 to June 25, 2002.
The balance of the second-quarter reserve will go toward a potential settlement of class-action lawsuits filed by investors in the failed energy trader Enron Corporation as well as other pending lawsuits.
To provide itself additional cushion to deal with still-pending lawsuits, Citigroup said that after settling the WorldCom matter it will have a “litigation reserve” of $6.7 billion on a pre-tax basis.
The company said the second-quarter charge will amount to 95 cents a share. The charge will have no impact on Citigroup’s current dividend, or its dividend policy, the company said.
Despite these huge numbers, Wall Street ratings agencies said the charge had not altered their ratings on Citigroup debt.
Shortly after the settlement was announced, the Standard & Poor’s Corporation said its AA-minus rating on Citigroup’s long-term debt will not be impacted by the charge.
The settlement, and the increase in legal reserves to $6.7 billion, “are admittedly larger that S&P expected would be necessary,” the ratings agency said in a statement.
“Nevertheless, they are well within the corporation’s power to cover out of a quarter’s earnings.”
On the New York Stock Exchange, Citigroup’s stock was trading at $45.26, down $1.46 a share.
“Citigroup is a growth company,” Charles Prince, the company’s chief executive, said in a statement. “It is important that we put this unfortunate chapter behind us so we can focus on our continuing prospects for growth. Today’s settlement is a milestone event in that effort.”
Citigroup’s brokerage division was a key backer of Worldcom securities before the company filed for the biggest bankruptcy in history in July, 2002, after a massive accounting fraud was revealed.