By Amy Guthrie
MEXICO CITY--Citigroup Inc.'s (C) Mexican unit, Grupo Financiero
Banamex, said Monday that its first-quarter net profit will be
reduced by $112 million due to reserves it has set aside to cover
seemingly bad loans to Mexican oil services firms.
The cut comes on top of Citigroup's move to reduce its
fourth-quarter and full-year results by about $235 million after
finding allegedly fraudulent billings at its Mexico unit.
Banamex said in a statement that the new charge is related to
loans it extended to Oceanografía SA de CV, the company that
Citigroup accused of fraud in February, as well as from loans to a
second oil services firm that appears to have also engaged in
fraud.
Citigroup disclosed earlier Monday that the second potential
fraud it has uncovered involved less than $30 million in credit.
The New York bank declined to reveal the name of the second
company. Mexican authorities said Citigroup hasn't yet filed
charges against another oil services firm.
Both firms provide services to Mexican state oil company
Petróleos Mexicanos, or Pemex, the banks said.
The Mexican unit set aside $165 million in reserves during the
first quarter to mostly cover anticipated charges from the loans to
Oceanografia and now this second oil services firm, the banks
said.
In a statement, Banamex said the additional reserves stem from
the bank's belief that, since its original February disclosure,
it's now less likely to recover the funds it lent to Oceanografia.
That first review found an apparent gap of $400 million in an
account that owed money to Banamex, Citigroup said.
Banamex said that during the first quarter, it reviewed all of
its financing arrangements that involve collections via accounts
receivable. That review led the bank to set aside more
reserves.
The Oceanografia loss stems from money that Banamex advanced the
company for work supposedly in progress for Pemex. The state oil
firm, however, said that Oceanografia had misrepresented the amount
of work done.
Oceanografia's chief executive, Amado Yañez Osuna, presented
himself to Mexican authorities for questioning in late March and
has since been under house arrest.
Write to Amy Guthrie at amy.guthrie@wsj.com