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Why Revlon Stock Rallied as Much as 22% Today

What happened

Shares of cosmetic maker Revlon (NYSE: REV) rose as much as 22% at one point today, though by roughly 3 p.m. EST, the stock had eased back to an 18% gain. Interestingly, it looks like the big news here only tangentially involves the company.

So what

This story is a bit hard to believe, but in August of last year Citigroup (NYSE: C), acting as a middleman, sent Revlon lenders a wire transfer for roughly $900 million. It was supposed to have sent $7.8 million. That's a big mistake that Citigroup attributed to human error. But the interesting thing here is that the bank sent the exact amount needed to repay the outstanding loan involved. While some of the lenders returned the funds to Citigroup, a small group refused, saying they "assumed" the loan had simply been repaid early. The bank took the matter to court.

Image source: Getty Images.

The ruling in that case, which was heard in December, came down today. Citigroup lost; the lenders that chose to keep the cash can, well, keep the cash. The reason gets into legal technicalities, but suffice it to say that the judge, based on earlier cases, decided that Citigroup, which made the wire transfer, bore the risk of any mistakes made in that transfer. While it is unclear how this actually impacts Revlon, let alone the broader banking industry, it appears at least some investors are betting that the cosmetics company's balance sheet just got a little bit stronger.

Now what

There is a pretty big fly in the ointment here. Citigroup isn't happy with the ruling and is highly likely to appeal what amounted to a $500 million adverse ruling. It's even possible that the bank could choose to go after Revlon for the cash. In other words, investors shouldn't get too excited about today's ruling because this somewhat crazy legal saga probably isn't over yet.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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