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Revlon: Citigroup’s $1.2b error could save beauty giant from bankruptcy

Two years ago, one of the biggest banks on the planet made one of the biggest blunders in history. Now, that could end up saving Revlon.

Beauty lovers watched with horror as cosmetics icon Revlon filed for bankruptcy last week with up to $14 billion in debt – but there’s a major twist in the saga most of us missed.

The iconic beauty brand filed Chapter 11 proceedings – which allows companies to restructure themselves while being protected from creditors and continuing to operate – late last week, citing debts of up to $US10 billion ($A14 billion).

Revlon’s woes were caused by years of brutal competition in the beauty sector coupled with inflation and major supply chain issues, although the company announced the brand would be safe in Australia, with money to be pumped into the local arm of the firm to keep it afloat .

Now, attention is turning to one of the biggest scandals in banking history – and it could end up saving Revlon.

Bank’s $900m fail

In August 2020, the world was stunned after news broke that Citigroup – one of the globe’s biggest banking institutions – accidentally paid off $US900 million ($A1.2 billion) of Revlon’s debt.

The circumstances are complicated, but in a nutshell, Citigroup was overseeing a Revlon loan from hedge funds including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, which was opened in 2016 and which required the makeup firm to make periodic interest payments until 2023 .

On August 11, Citigroup was supposed to administer one of those repayments from the bank to the lenders, which should have been worth a couple million dollars.

But thanks to human error and a seriously complicated transaction system, a Citigroup employee accidentally sent the full amount, effectively paying off the entire loan three years ahead of schedule, and using Citigroup’s own cash to do so.

And here’s where it gets even juicer.

Usually, when a mistake like this happens – something that’s actually reasonably common, believe it or not – the person or institution that receives the mistaken payment simply sends it back, quickly fixing the error.

Not this time.

Instead, most of the hedge funds not only failed to return the cash, they also refused to answer increasingly frantic calls from Citi.

Soon, lawyers were called in – and eventually, a judge sensationally ruled the lenders could keep the money, although a court battle over the remaining $US500 million ($A718 million) of loan principal is still underway after Citigroup appealed the decision.

According to Bloomberg, if Citigroup were to lose, it “could erase almost 15 per cent of Revlon’s $US3.4 billion ($A4.8 billion) debt load in an instant, easing the company’s path out of bankruptcy”.

Revlon’s big mistake

Meanwhile, other major brands will likely be nervously watching the Revlon sage unfold, and hoping to learn from the beauty juggernaut’s many mistakes.

Revlon, which lists Elizabeth Arden, Almay, and Britney Spears Fragrances among its brands and which is owned by billionaire investor Ronald Perelman and run by his daughter Debra Perelman, reported a net loss of $US67 million ($95m) from January to March.

While the company suffered from a range of debt issues and global pressures including supply chain disruptions, Queensland University of Technology retail expert Dr Gary Mortimer told news.com.au one of it’s major errors was losing relevance with an emerging younger market.

“When you think about Revlon, you also have Elizabeth Arden, which is one of those classic brands that has been around for a long time, but it does tend to show the business failed to respond to the changing demographic and emerging younger market,” he said.

“Customers buying Elizabeth Arden are in their 70s and 80s now, and it just goes to show that even iconic brands do need to reinvent and reposition themselves or at least create a new brand for the emerging market.

“Estee Lauder is of the same ilk as Revlon, but it developed MAC which really appeals to a younger audience.”

Dr Mortimer said Revlon had fallen into the trap of “strategic inertia” – a common trend where huge companies that have been popular for decades believe they are too large and successful to fail, and therefore neglect to innovate and adapt, leading to their downfall.

“We see this happen so frequently in retail brands like Roger David, which was around for 76 years and did not forecast that global fast fashion retailers would enter the market,” he explained. “They continued to sell the exact same products, and now they’re gone.”

Revlon’s collapse has also been partially blamed on celebrity competition from the likes of Rihanna’s Fenty Beauty and Kylie Jenner’s Kylie Cosmetics, as well as Revlon’s failure to use social media and embrace the YouTube makeup tutorial phenomenon.

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