Citi's 'living will' flaws manageable but distracting, J.P.Morgan says

(Reuters) -The problems with Citigroup's so-called living will, which details how it would be unwound in the event of bankruptcy, are manageable but could be bothersome for its executives, according to J.P.Morgan.

Citi was one of four banks whose living wills were found lacking by the U.S. Federal Reserve and the Federal Deposit Insurance Corp due to shortcomings tied to their derivatives portfolios.

"We expect this will require more work by lawyers, consultants, and management and add to the expense base but we expect the impact should be manageable," J.P.Morgan said.

"It adds to the list of issues that management needs to focus on," the brokerage said, noting reports about the setbacks Citi is facing over its consent orders and a recent lawsuit by a former managing director who alleged she was fired for opposing what she said were attempts to give regulators false information.

Citi has said the lawsuit is "without merit" and vowed to "vigorously defend against it".

The bank has been battling concerns around its data management for years. Last week, it told investors it is automating processes and improving data reporting to meet regulators' orders.

"The liquidity crisis has set regulators on a path for more stringent follow up when resolution of issues aren't addressed in a timely manner," said Laurent Birade, senior director at Moody's.

The collapse of three major U.S. banks last year and fears stemming from lenders' exposure to potential bad loans have prompted strict oversight from the industry's watchdogs.

"Citi's recent resolution plan (living will) weakness underscores the need for banks to take earlier warnings seriously," Birade said.

The bank declined to comment, and reiterated its statement from last week where it said it was fully committed to addressing the issues identified by regulators.

(Reporting by Niket Nishant in Bengaluru and Saeed Azhar in New York; Editing by Shounak Dasgupta)