The Bank’s Epic $1.2 Billion Failure Amid Revlon’s Collapse

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 in 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 that most of we missed.

The iconic beauty brand filed for Chapter 11 proceedings – which allows businesses to restructure while being protected from creditors and continuing to operate – at the end of last week, citing debts of up to $10 billion. dollars (14 billion Australian dollars).

Revlon’s woes were caused by years of brutal competition in the beauty industry, coupled with inflation and major supply chain issues, despite the company saying the brand would be safe in Australia , with money to be injected into the local branch of the business to keep it afloat. .

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

$900 million bank failure

In August 2020, the world was stunned after news broke that Citigroup – one of the world’s largest banking institutions – accidentally repaid $900 million (A$1.2 billion) of debt from Revlon.

The circumstances are complicated, but in a nutshell, Citigroup oversaw a Revlon loan from hedge funds, including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, which was opened in 2016 and required the makeup company to make cash payments. periodic interest 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 few million dollars.

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

And this is where it gets even juicier.

Usually when an error like this occurs – something that is actually quite common, believe it or not – the person or institution receiving the wrong payment simply sends it back, quickly correcting the error.

Not this time.

Instead, most hedge funds not only failed to return the money, they also refused to respond to 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 $500m (A$718m) of the principal of the loan is still outstanding after Citigroup appealed the decision.

According Bloombergif Citigroup were to lose, it “could erase almost 15% of Revlon’s $3.4 billion (A$4.8 billion) debt in an instant, making it easier to emerge from bankruptcy. company “.

Revlon’s Big Mistake

Meanwhile, other major brands will likely nervously watch the wise Revlon unfold and hope to learn from the beauty juggernaut’s many mistakes.

Revlon, which lists Elizabeth Arden, Almay and Britney Spears Fragrances among its brands and is owned by billionaire investor Ronald Perelman and run by his daughter Debra Perelman, reported a net loss of $67 million ($95 million) from January to March.

As the company suffered from a series of debt problems and global pressures, including supply chain disruptions, Queensland University of Technology retail expert Dr Gary Mortimer, told that one of its biggest mistakes was losing relevance with a younger, emerging market.

“When you think of Revlon, you also have Elizabeth Arden, which is one of those classic brands that has been around for a long time, but that tends to show that the company has failed to respond to changing demographics and to the emerging youth market,” he said.

“Customers buying Elizabeth Arden are now in their 70s and 80s, and it just goes to show that even iconic brands 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 has developed MAC which really appeals to a younger audience.”

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

“We see this happening so frequently in retail brands like Roger David, which had been around for 76 years and hadn’t anticipated global fast fashion retailers would enter the market,” he explained. “They kept selling the exact same products, and now they’re gone.”

Revlon’s collapse has also been partly blamed on competition from celebrities like Rihanna’s Fenty Beauty and Kylie Jenner’s Kylie Cosmetics, as well as Revlon’s inability to use social media and embrace the tutorial phenomenon. makeup on YouTube.

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