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Legal settlement cuts into Citigroup profit

Citigroup Inc. earned $1.14 billion in the second quarter, 73 percent lower than a year ago because of a mammoth class-action settlement with WorldCom investors that took a heavy toll on the big bank's profits.
/ Source: The Associated Press

Citigroup Inc. earned $1.14 billion in the second quarter, 73 percent lower than a year ago because of a mammoth class-action settlement with WorldCom investors that took a heavy toll on the big bank's profits.

The nation's largest financial institution reported Thursday that it earnings equated to 22 cents a share for the April-June quarter, down sharply from $4.30 billion, and 83 cents a share, it netted in the same period a year ago.

The results included an after-tax charge of $4.95 billion, or 95 cents a share, to pay for the previously announced settlement and bolster the company's reserves to pay for other litigation.

Citigroup in May agreed to a $2.65 billion settlement with investors in WorldCom Inc., the disgraced telecommunications giant that was backed by Citi and other banks. The agreement is one of the largest securities fraud settlements ever. WorldCom continues to do business, but has changed its name to MCI Inc.

Despite the settlement's anticipated effect on its earnings, Citigroup's performance was somewhat better than analysts had expected.

Excluding charges, and an after-tax gain for sale of a stake in Samba Financial Group, the company said it would have earned $1.02 a share, higher than the 97 cents a share forecast by analysts surveyed by Thomson First Call.

"Excluding the effect of these items, underlying business dynamics were strong," the company's chief executive officer, Charles Prince, said in a written release.