October 25, 2021

DealBook: Citigroup in $590 Million Settlement of Subprime Lawsuit

Foreclosure notices hit a record high in 2007, driven up by problems with subprime mortgages.David Zalubowski/Associated PressForeclosure notices hit a record high in 2007, driven up by problems with subprime mortgages.

Citigroup said on Wednesday that it had agreed to pay $590 million to settle a class action lawsuit brought by shareholders who contended that they had been misled about the bank’s exposure to subprime mortgage debt on the eve of the financial crisis.

The shareholder lawsuit, originally filed in November 2007, alleged that former officers and directors of Citigroup had “concealed the company’s failure to write down impaired securities containing subprime debt” at a time when the collapse in the mortgage market made it apparent that banks including Citi would be adversely impacted. In late 2007, Citigroup wrote down billions of dollars on collateralized debt obligations tied to subprime debt, and reported a fourth-quarter loss of $9.83 billion that year.

In a statement on Wednesday, Citigroup, which denied the allegations, said: “Citi will be pleased to put this matter behind us. This settlement is a significant step toward resolving our exposure to claims arising from the period of the financial crisis.”

It added, “Citi is fundamentally a different company today than at the beginning of the financial crisis.”

The proposed settlement, which needs to be approved by Judge Sidney H. Stein of the Federal District Court in Manhattan, covers investors who bought Citi shares from Feb. 26, 2007, through April 18, 2008. Shares of Citigroup traded as high as $55 in the summer of 2007. By Feb. 27, its stock price had tumbled by more than half.

Vikram Pandit, chief of Citigroup.Brendan McDermid/ReutersVikram Pandit, chief of Citigroup.

In a court filing on Wednesday, the plaintiffs’ lawyers from the law firm Kirby McInerney, wrote:

Although plaintiffs believe that the defendants knowingly or recklessly misrepresented Citigroup’s C.D.O. exposure and valuation, defendants have raised a host of factual and legal challenges increasing the uncertainty of a favorable outcome absent settlement. Securities fraud litigations like this action are notoriously complex and difficult to prove: rarely is there concrete direct evidence of fraudulent intent.

For Citigroup, as well as other Wall Street firms, the business of slicing apart and packaging mortgages and other loans into complex securities had been a lucrative and fast-growing business before the financial crisis. The bank underwrote some $70 billion in C.D.O.’s from 2004 to 2008.

Citigroup paid $75 million in 2010 to settle a Securities and Exchange Commission complaint that the bank made misleading public statements about the extent of its subprime exposure. In a statement at the time, the agency said that “between July and mid-October 2007, Citigroup represented that subprime exposure in its investment banking unit was $13 billion or less, when in fact it was more than $50 billion.”

In a separate case involving C.D.O.’s, the bank had agreed with the Securities and Exchange Commission to pay $285 million over allegations that Citi had misled investors in a C.D.O.’s by not disclosing that it was helping select the mortgage securities that underpinned the investment and that it was betting against it. That settlement was initially rejected by a federal judge, but an appeals court found that the judge may have overstepped his authority.

Article source: http://dealbook.nytimes.com/2012/08/29/citigroup-in-590-million-settlement-of-subprime-lawsuit/?partner=rss&emc=rss

Bucks: Consumers Want Fast, Friendly Service

While more than a third of consumers report having had a bad experience with a service provider, and the vast majority of them took time to complain about it, a recent survey finds.

The consulting firm Accenture surveyed 1,000 consumers about in-home service calls, and found that while most people still pick up the phone to complain to the company, they increasingly go to online sites like Facebook and Angie’s List. Twenty percent of consumers under age 35 said they expressed their views online, compared with about half that for those age 35 to 44.

Consumers are also willing to go to another provider because of bad service: 63 percent of complainers, or 23 percent of the total, said they switched to a different company, and 77 percent of complainers (28 percent of the total) looked to use other service providers more often.

The survey findings also suggest that consumers judge companies like cable and satellite providers, appliance installation and repair firms, home improvement contractors and utilities not only on the range of services they provide, but also on  how well they perform them — and on how promptly they fix things when something goes wrong.

In other words, customers want their cable company to deliver high-speed Internet connections. But they may care even more that the cable guy can fix that broken modem on the first try. Younger consumers, in particular, have higher expectations for friendly, knowledgeable customer service.

Based on the survey, Accenture offers this consumer-friendly advice to companies: Invest in training your service representatives, and outsource with care. And rather than focusing on managing the company’s reputation in online forums, companies should invest in providing better service overall. “Social media can be an asset or a liability,” the survey analysis says. The answer, the analysis went on, “rests very much in how well the company provides service in the first place.”

Have you had a particularly bad experience with in-home services? How did you complain? And did you switch companies as a result?

Article source: http://feeds.nytimes.com/click.phdo?i=1892b5c1247a01c56901b4c2b1519982

Advertising: Interpublic, 5 Years and 180 Degrees Later

On March 27, 2006, executives of Interpublic, the giant agency holding company, had, for the first time, a daylong meeting with Wall Street. The intent was to reassure nervous investors that Interpublic was finally turning around after almost four years of struggling with serious financial and operational problems.

On Tuesday, Interpublic, which owns agencies like Huge, Mullen and Weber Shandwick, held its second such meeting, which was, like the first, called Investor Day. More than 200 stock analysts, shareholders, hedge fund managers, executives from rating services and reporters attended the follow-up, at the Times Center in Midtown Manhattan.

This time, the purpose was to report on Interpublic’s considerable progress since the first meeting and declare confidently that additional ambitious goals could be met.

One such goal is continuing to improve profit margins at Interpublic, the world’s fourth-largest agency company in revenue, so they match those of peers and competitors like WPP, which is first; the Omnicom Group, No. 2; and the Publicis Groupe, third.

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“It’s a little bit easier of a meeting today than it was five years ago,” Frank Mergenthaler, executive vice president and chief financial officer of Interpublic, said with a smile.

“We’re a much different company than we were five years ago,” he added, when financial oversight was so lax that “Interpublic was out of control.”

Interpublic “will attain peer-level margins” of 13 percent, Mr. Mergenthaler said, compared with 8.4 percent last year.

“It’s not if, it’s when,” he added, then proceeded to proffer a date: by 2014.

When Mr. Mergenthaler spoke at the first Investor Day, he was the fourth chief financial officer at Interpublic in four years. His presence at the second one, in the same post, said more than any PowerPoint presentation could.

Still, there were many slide shows and speeches and slick video clips during the meeting, which ran almost six hours. (The first one ran eight, including a brief power failure.) The audience heard from senior managers of the major Interpublic units — DraftFCB, Lowe Partners Worldwide, the McCann Worldgroup and Mediabrands — and top officers of Interpublic.

“A lot of people came up to me and said, ‘You must be feeling pretty good about where this company has gone,’ ” said Michael I. Roth, chairman and chief executive of Interpublic. He also held those posts at the first Investor Day, where he led the efforts to sell the turnaround story.

“I was asked, ‘Is today’s presentation sort of a victory lap?’ ” Mr. Roth continued. “What I’d say is that it’s a recognition we’re a real company and that, collectively, we’ve delivered a lot.”

“The opportunity is there,” he added, to deliver more, pointing to the recent decisions by Interpublic to resume paying a dividend and buying back shares.

In an interview, he was asked about the timing of Investor Day 2.0. “Now that the economy is turning around,” he said, “this is the right time to show how we’re positioned for the future.”

In an odd way, Interpublic may have benefited from the timing of its problems, which began to emerge in mid-2002. They included accounting irregularities, restatements of financial results and an investigation by the Securities and Exchange Commission that ended with the payment of a civil penalty of $12 million.

The ensuing measures to turn Interpublic around led to its operating conservatively in the boom years before the global financial crisis; for instance, it cut back on expensive acquisitions. That may have helped Interpublic in its efforts to get back on track.

Although “it was obviously a difficult period for IPG,” Mr. Roth said, using the stock-ticker symbol for Interpublic, “the difficulties positioned us well.”

An analyst who attended both meetings described as “impressive” what Interpublic achieved from 2006 to 2011.

“Clearly, they’ve come a long way,” said Alexia Quadrani, who was at Bear Stearns then and is at J. P. Morgan Securities now.

“The targets seem achievable,” she added, referring to remarks by Mr. Mergenthaler, “so long as we have a healthy economy.”

In trading on Tuesday on the New York Stock Exchange, Interpublic shares closed at $12.10, down a penny. On Investor Day 2006, they closed at $10.05; in the ensuing years, the price ranged from $2.61 to $13.81.

The Interpublic executives sought to keep the meeting looking forward more than back.

For instance, Matt Seiler, chief executive of Mediabrands, which oversees media agencies like Initiative and Universal McCann, announced a reorganization that replaces the traditional model of geographic regions with clusters based on the economic status and potential of countries. One cluster will include Brazil, Britain, China, France, Germany, India and Russia, while another will include Africa, the Baltics, the Middle East and Turkey.

And Darren Moran, the new executive vice president and chief creative officer at the New York office of DraftFCB, offered a preview of a commercial for the Oreo cookie line sold by Kraft Foods. The spot, for Oreo Fudge Cremes, shows a family expressing surprise at the taste by exclaiming eyebrow-raising catchphrases like “Shut the front door!” and “Franklin Delano!”

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Although Mr. Roth and Mr. Mergenthaler returned from the first Investor Day, several others who made presentations in 2006 did not because they had left Interpublic. Among them were the former leaders of Lowe and the Mediabrands predecessor, the Interpublic Media Group.

Also different were the operations that concerned the audience members. In 2006, they asked about the subpar performances of Lowe and the media agencies. Five years later, those holdings having been deemed recovered, the questions were about results at the McCann Worldgroup, the largest Interpublic unit, which has lost some large accounts and undergone executive reshufflings.

“The Worldgroup wasn’t broken,” Mr. Roth said. “It just had to be transformed.” Among the shifts were the hiring of managers like Nick Brien, chief executive, and Mark Landsberg, chief executive of MRM Worldwide.

Ms. Quadrani said she believed “the Worldgroup problems are not as dire as those at the media group and Lowe five years ago.”

“It’s not like it’s broken,” she added. “It just needs to improve.”

Article source: http://feeds.nytimes.com/click.phdo?i=5c714d4a9e0fa7d37d8eb588909e13c7