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.”
Who has lived at The Bishops Avenue?
- George Sainsbury of the supermarket dynasty, sugar magnate William Park Lyle and actress Dame Gracie Fields were residents in the 1930s when the street was only known as ‘Millionaires’ Row’.
- Then came the international super rich, including the last king of Greece, Constantine II, the Sultan of Brunei and Indian steel magnate Lakshmi Mittal who was at one point ranked the third richest person in the world.
- Turkish tycoon Halis Torprak sold his mansion for £50m in 2008 after spending just two days there. The House of Saud sold 10 properties on the road in 2013 for almost £80m.
- Other residents have included Iraqi businessman Nemir Kirdar, singer Ariana Grande, holiday camp impresario Sir Billy Butlin, businessman Asil Nadir, Paul McCartney’s former wife Heather Mills.
Hunting park to luxury living
- Land was originally the Bishop of London's hunting park, hence the name
- The road was laid out in the mid 19th Century, meandering through woodland and farmland
- Its earliest houses at the turn of the 20th Century were substantial detached properties with extensive grounds
The specs: Rolls-Royce Cullinan
Price, base: Dh1 million (estimate)
Engine: 6.75-litre twin-turbo V12
Transmission: Eight-speed automatic
Power: 563hp @ 5,000rpm
Torque: 850Nm @ 1,600rpm
Fuel economy, combined: 15L / 100km
UAE%20SQUAD
%3Cp%3E%0DJemma%20Eley%2C%20Maria%20Michailidou%2C%20Molly%20Fuller%2C%20Chloe%20Andrews%20(of%20Dubai%20College)%2C%20Eliza%20Petricola%2C%20Holly%20Guerin%2C%20Yasmin%20Craig%2C%20Caitlin%20Gowdy%20(Dubai%20English%20Speaking%20College)%2C%20Claire%20Janssen%2C%20Cristiana%20Morall%20(Jumeirah%20English%20Speaking%20School)%2C%20Tessa%20Mies%20(Jebel%20Ali%20School)%2C%20Mila%20Morgan%20(Cranleigh%20Abu%20Dhabi).%3C%2Fp%3E%0A
Strait of Hormuz
Fujairah is a crucial hub for fuel storage and is just outside the Strait of Hormuz, a vital shipping route linking Middle East oil producers to markets in Asia, Europe, North America and beyond.
The strait is 33 km wide at its narrowest point, but the shipping lane is just three km wide in either direction. Almost a fifth of oil consumed across the world passes through the strait.
Iran has repeatedly threatened to close the strait, a move that would risk inviting geopolitical and economic turmoil.
Last month, Iran issued a new warning that it would block the strait, if it was prevented from using the waterway following a US decision to end exemptions from sanctions for major Iranian oil importers.
RESULTS
Lightweight (female)
Sara El Bakkali bt Anisha Kadka
Bantamweight
Mohammed Adil Al Debi bt Moaz Abdelgawad
Welterweight
Amir Boureslan bt Mahmoud Zanouny
Featherweight
Mohammed Al Katheeri bt Abrorbek Madaminbekov
Super featherweight
Ibrahem Bilal bt Emad Arafa
Middleweight
Ahmed Abdolaziz bt Imad Essassi
Bantamweight (female)
Ilham Bourakkadi bt Milena Martinou
Welterweight
Mohamed Mardi bt Noureddine El Agouti
Middleweight
Nabil Ouach bt Ymad Atrous
Welterweight
Nouredine Samir bt Marlon Ribeiro
Super welterweight
Brad Stanton bt Mohamed El Boukhari
Conflict, drought, famine
Estimates of the number of deaths caused by the famine range from 400,000 to 1 million, according to a document prepared for the UK House of Lords in 2024.
It has been claimed that the policies of the Ethiopian government, which took control after deposing Emperor Haile Selassie in a military-led revolution in 1974, contributed to the scale of the famine.
Dr Miriam Bradley, senior lecturer in humanitarian studies at the University of Manchester, has argued that, by the early 1980s, “several government policies combined to cause, rather than prevent, a famine which lasted from 1983 to 1985. Mengistu’s government imposed Stalinist-model agricultural policies involving forced collectivisation and villagisation [relocation of communities into planned villages].
The West became aware of the catastrophe through a series of BBC News reports by journalist Michael Buerk in October 1984 describing a “biblical famine” and containing graphic images of thousands of people, including children, facing starvation.
Band Aid
Bob Geldof, singer with the Irish rock group The Boomtown Rats, formed Band Aid in response to the horrific images shown in the news broadcasts.
With Midge Ure of the band Ultravox, he wrote the hit charity single Do They Know it’s Christmas in December 1984, featuring a string of high-profile musicians.
Following the single’s success, the idea to stage a rock concert evolved.
Live Aid was a series of simultaneous concerts that took place at Wembley Stadium in London, John F Kennedy Stadium in Philadelphia, the US, and at various other venues across the world.
The combined event was broadcast to an estimated worldwide audience of 1.5 billion.
Who was Alfred Nobel?
The Nobel Prize was created by wealthy Swedish chemist and entrepreneur Alfred Nobel.
- In his will he dictated that the bulk of his estate should be used to fund "prizes to those who, during the preceding year, have conferred the greatest benefit to humankind".
- Nobel is best known as the inventor of dynamite, but also wrote poetry and drama and could speak Russian, French, English and German by the age of 17. The five original prize categories reflect the interests closest to his heart.
- Nobel died in 1896 but it took until 1901, following a legal battle over his will, before the first prizes were awarded.
