For years Citigroup has been an anomaly among big banks, relying on an obscure piece of software it helped develop to manage loan payments. Just as the bank tried to replace it, things went terribly wrong.
The saga began emerging in court this week as the firm blamed human errors for mistakenly sending $900 million (Dh3.3 billion) to a fleet of hedge funds reluctant to return it. But the backdrop, according to sources with knowledge of what happened, is a tale of arcane technology stretching back to the 1990s. It culminates with the bank’s decision last year to replace software with the industry standard. That rollout is still underway, adding to upheaval at a time when employees are working from home.
An internal review at the bank found humans manually operating the old software were ultimately at fault, and that their remote locations were not the problem, one source said. Yet a global pandemic is, at the least, an awkward time to embark on such a complex transition.
“If you want to switch from one provider to another, it’s a very big project,” said Marc Victory, manager in the financial services practice at the consultancy Sia Partners. “Changes in providers are very cumbersome and very hard.”
The incident happened at a Citigroup unit that serves as the administrative agent for loans, collecting and distributing interest payments and providing other housekeeping services. The borrower in this case, cosmetics giant Revlon, was locked in a battle with lenders who wanted their money back.
After Revlon repurchased part of the debt, a Citigroup employee was supposed to manually adjust the share of the loan the remaining lenders still owned ahead of interest payments scheduled to be sent out this month. But the employee did not select the correct system options – instead allowing the loan to be repaid in full with interest. Colleagues who are supposed to catch such errors did not.
“Unfortunately, the manual checks of that selection also failed to detect the mistake,” Citigroup wrote in its court filing.
Though the bank soon recovered hundreds of millions of dollars from recipients, a group that received most of the money has refused to send it back, forcing the firm to launch an embarrassing legal battle.
Behind the scenes, regulators have encouraged the bank in recent years to invest in improving its loan operations, according to sources. The firm has long used Oracle’s Flexcube technology for loans. But after a review, the bank decided to switch to Finastra Group’s Loan IQ, which has been embraced by most other big banks.
Citigroup’s use of Flexcube tech traces to the early 1990s, when the bank spun out a business called Citicorp Information Technology Industries. The firm initially invested $400,000 in the fledgling business, which would be led by the bank’s then-head of overseas software, Rajesh Hukku.
“Basically, what they said was: ‘We like you guys. We respect that you can do something great,’” Mr Hukku said in a 2007 interview with the University of Pennsylvania’s Wharton School. “So we will put our money into it. But we can’t put in management mind-share because it is not our core business to sell software.”
The young venture, which would later change its name to I-Flex Solutions, debuted Flexcube in 1997 and ultimately signed a deal with Citigroup to replace the lender’s legacy banking system. In 2005, Oracle purchased Citigroup’s 41 per cent stake in I-Flex solutions for $593m and went on to increase its stake until it finally changed its name to Oracle Financial Services in 2008.
"We have put significant, additional controls in place until the new system is operational"
Citigroup promoted Stuart Riley to lead the firm’s operations and technology teams inside its institutional clients group in January 2019, and he began a broad review of the unit’s underlying systems, deciding to migrate its syndicated loan technology to Loan IQ. Finastra promises the technology can help banks reduce time spent processing loans by as much as 30 per cent.
“We take pride in the role that we play as a global leader in financial services and recognise that an operational error of this nature is unacceptable,” Citigroup said in a statement. “We have put significant, additional controls in place until the new system is operational.”
Citigroup has been briefing regulators including the Office of the Comptroller of the Currency and the Federal Reserve about what happened this month, Bloomberg previously reported. The unit’s planned migration to another software platform might help to assuage concerns that the accidental payments signal deeper problems that still need to be addressed.
“The error is a reminder that the transition they’re going through is absolutely necessary,” Paul Spiteri, chief executive of The Lending Practice, which advises banks on their commercial lending technology and operations, said. “Loan IQ is built to avoid problems like this.”
THREE
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Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law
Global institutions: BlackRock and KKR
US-based BlackRock is the world's largest asset manager, with $5.98 trillion of assets under management as of the end of last year. The New York firm run by Larry Fink provides investment management services to institutional clients and retail investors including governments, sovereign wealth funds, corporations, banks and charitable foundations around the world, through a variety of investment vehicles.
KKR & Co, or Kohlberg Kravis Roberts, is a global private equity and investment firm with around $195 billion of assets as of the end of last year. The New York-based firm, founded by Henry Kravis and George Roberts, invests in multiple alternative asset classes through direct or fund-to-fund investments with a particular focus on infrastructure, technology, healthcare, real estate and energy.
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
More on Quran memorisation:
The specs
Engine: 1.5-litre turbo
Power: 181hp
Torque: 230Nm
Transmission: 6-speed automatic
Starting price: Dh79,000
On sale: Now
The biog
Name: Dhabia Khalifa AlQubaisi
Age: 23
How she spends spare time: Playing with cats at the clinic and feeding them
Inspiration: My father. He’s a hard working man who has been through a lot to provide us with everything we need
Favourite book: Attitude, emotions and the psychology of cats by Dr Nicholes Dodman
Favourit film: 101 Dalmatians - it remind me of my childhood and began my love of dogs
Word of advice: By being patient, good things will come and by staying positive you’ll have the will to continue to love what you're doing
Know your Camel lingo
The bairaq is a competition for the best herd of 50 camels, named for the banner its winner takes home
Namoos - a word of congratulations reserved for falconry competitions, camel races and camel pageants. It best translates as 'the pride of victory' - and for competitors, it is priceless
Asayel camels - sleek, short-haired hound-like racers
Majahim - chocolate-brown camels that can grow to weigh two tonnes. They were only valued for milk until camel pageantry took off in the 1990s
Millions Street - the thoroughfare where camels are led and where white 4x4s throng throughout the festival
What is graphene?
Graphene is extracted from graphite and is made up of pure carbon.
It is 200 times more resistant than steel and five times lighter than aluminum.
It conducts electricity better than any other material at room temperature.
It is thought that graphene could boost the useful life of batteries by 10 per cent.
Graphene can also detect cancer cells in the early stages of the disease.
The material was first discovered when Andre Geim and Konstantin Novoselov were 'playing' with graphite at the University of Manchester in 2004.
GOLF’S RAHMBO
- 5 wins in 22 months as pro
- Three wins in past 10 starts
- 45 pro starts worldwide: 5 wins, 17 top 5s
- Ranked 551th in world on debut, now No 4 (was No 2 earlier this year)
- 5th player in last 30 years to win 3 European Tour and 2 PGA Tour titles before age 24 (Woods, Garcia, McIlroy, Spieth)
2018 ICC World Twenty20 Asian Western Regional Qualifier
Saturday results
Qatar beat Kuwait by 26 runs
Bahrain beat Maldives by six wickets
UAE beat Saudi Arabia by seven wickets
Monday fixtures
Maldives v Qatar
Saudi Arabia v Kuwait
Bahrain v UAE
* The top three teams progress to the Asia Qualifier
Company profile
Date started: Founded in May 2017 and operational since April 2018
Founders: co-founder and chief executive, Doaa Aref; Dr Rasha Rady, co-founder and chief operating officer.
Based: Cairo, Egypt
Sector: Health-tech
Size: 22 employees
Funding: Seed funding
Investors: Flat6labs, 500 Falcons, three angel investors
HAJJAN
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Top%2010%20most%20competitive%20economies
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Why seagrass matters
- Carbon sink: Seagrass sequesters carbon up to 35X faster than tropical rainforests
- Marine nursery: Crucial habitat for juvenile fish, crustations, and invertebrates
- Biodiversity: Support species like sea turtles, dugongs, and seabirds
- Coastal protection: Reduce erosion and improve water quality
MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
South and West: From a Notebook
Joan Didion
Fourth Estate
Arabian Gulf Cup FINAL
Al Nasr 2
(Negredo 1, Tozo 50)
Shabab Al Ahli 1
(Jaber 13)
Sholto Byrnes on Myanmar politics
Killing of Qassem Suleimani
GAC GS8 Specs
Engine: 2.0-litre 4cyl turbo
Power: 248hp at 5,200rpm
Torque: 400Nm at 1,750-4,000rpm
Transmission: 8-speed auto
Fuel consumption: 9.1L/100km
On sale: Now
Price: From Dh149,900
match info
Southampton 0
Arsenal 2 (Nketiah 20', Willock 87')
Red card: Jack Stephens (Southampton)
Man of the match: Rob Holding (Arsenal)
The specs
AT4 Ultimate, as tested
Engine: 6.2-litre V8
Power: 420hp
Torque: 623Nm
Transmission: 10-speed automatic
Price: From Dh330,800 (Elevation: Dh236,400; AT4: Dh286,800; Denali: Dh345,800)
On sale: Now
Netherlands v UAE, Twenty20 International series
Saturday, August 3 - First T20i, Amstelveen
Monday, August 5 – Second T20i, Amstelveen
Tuesday, August 6 – Third T20i, Voorburg
Thursday, August 8 – Fourth T20i, Vooryburg
UAE currency: the story behind the money in your pockets
Company Profile
Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
Funds raised: $22 million
More from Neighbourhood Watch
Tips for SMEs to cope
- Adapt your business model. Make changes that are future-proof to the new normal
- Make sure you have an online presence
- Open communication with suppliers, especially if they are international. Look for local suppliers to avoid delivery delays
- Open communication with customers to see how they are coping and be flexible about extending terms, etc
Courtesy: Craig Moore, founder and CEO of Beehive, which provides term finance and working capital finance to SMEs. Only SMEs that have been trading for two years are eligible for funding from Beehive.
HOW DO SIM CARD SCAMS WORK?
Sim swap frauds are a form of identity theft.
They involve criminals conning mobile phone operators into issuing them with replacement Sim cards, often by claiming their phone has been lost or stolen
They use the victim's personal details - obtained through criminal methods - to convince such companies of their identity.
The criminal can then access any online service that requires security codes to be sent to a user's mobile phone, such as banking services.