Citigroup Inc. has discovered obsolete software caused a nearly $1 billion problem earlier this month.
Sources told Bloomberg News the software, which has led to four lawsuits involving as many as 16 companies, was installed in the 1990s.
Last year, the New York-based global financial services corporation decided to replace the software with the state-of-the art standard intended to manage loan payments. While the installation is still underway, it led to what Citi called a “clerical error” and mistakenly sent $900 million to a group of Revlon Inc.’s lenders.
The news service reported a Citigroup employee should have adjusted the share of the loan the remaining lenders owed, but failed to do so and the debt was paid accidentally.
“Unfortunately, the manual checks of that selection also failed to detect the mistake,” Citigroup wrote in its court filing.
It turns out, working on what should have been a smooth transition to the update isn’t so easy in a pandemic.
“If you want to switch from one provider to another, it’s a very big project,” Marc Victory, a manager at Sia Partners, the Paris-based international consultancy, told Bloomberg. “Changes in providers are very cumbersome and very hard.”
The giant error was discovered in a Citigroup division responsible for loans, as well as collecting and distributing interest payments. But before the team uncovered the mistake, the bank paid the money to Revlon Inc.’s lenders on a loan issued in 2016.
Citigroup demanded the money back. While the bank soon recovered hundreds of millions of dollars from recipients, some hedge funds have refused to send it back, forcing the firm to launch a legal battle.
The problem couldn’t come at a worse time for Revlon, which is in debt by nearly $3 billion, hit hard by the pandemic and seeking to restructure.
“We take pride in the role that we play as a global leader in financial services and recognize 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.”