Making mistakes is only natural and, at times beneficial, leading individuals to evolve and gain experience. Whether they are the result of poor judgment, unsuitable timing or miscalculations, there are always solutions to overcome these unfortunate incidents.
However, in this particular case, finding a suitable solution implied multiple lawsuits, with the reputation of one of the biggest banking institutions in the US at stake. This is the story of Citi, Revlon and a $900 million gaffe.
In 2016, the multinational cosmetics company Revlon completed a payment of $870 million to secure the acquisition of another makeup brand, Elizabeth Arden. Later that year, Revlon took out two loans consisting of over $2 billion, hoping to increase the popularity and sales of the label. Citibank and Bank of America Securities ensured the financing. These bank entities had the role of administrators, connecting the borrower (Revlon) to the 40 hedge funds acting as the lenders of the deal. This type of operation is considered typical in the business field. Conglomerates such as Google and Starbucks turn to loans to guarantee a lucrative and stable position in the industry.
Everything changed on one summer day in 2020 when Citi mistakeably wired $900 million (nearly the entire balance of the loan) instead of an interest payment of $8 million to the lenders. Although the bank requested the money to be sent back, some of the hedge funds representatives did not comply, claiming that they had no reason to believe the payment was not intentional. Spokespeople from the bank declared that the error was human-based and that the funds should be returned, given that Revlon would never be able to complete such a large transaction.
The dispute was taken to court where the event was described as ‘a banking error of perhaps unprecedented nature and magnitude’ by a federal judge. Hopes regarding the recovery of the remaining $500 million were crashed at first. The transactions were labeled as final and complete, not being subjectable to revocation. The litigation spanned over two years before the lenders were forced to return the money. Even though the mishap was eventually fixed, the banking institution endured harsh criticism from both regulators and the general public.
While errors are prone to happen at times, caution must be taken to minimize their effects. In this particular instance, the incident would have been easily avoidable if the people involved had paid more attention to fine details. Safe to say, after these events, they have certainly learned their lesson.
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