 "Citigroup, US reach $7-bn mortgage settlement")
Citigroup and the Justice Department have agreed to a $7-billion deal that will settle a federal investigation into the mortgage securities the bank sold in the run-up to the financial crisis.
The settlement, announced on Monday morning, includes a $4-billion cash penalty to the Justice Department — the largest payment of its kind — as well as $2.5 billion in so-called soft dollars earmarked for aiding struggling consumers and $500 million to state attorneys general and the Federal Deposit Insurance Corporation.
The deal, after months of contentious negotiations, averts a lawsuit that would have proved costly for both sides and resolves a civil investigation into Citigroup’s packaging and selling of mortgage securities that soured during the financial crisis, causing large losses to investors.
“The bank’s misconduct was egregious,” Attorney General Eric H Holder Jr said in a statement. “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”
The consumer relief will involve financing for the construction and preservation of affordable multi-family rental housing, principal reduction and forbearance for residential mortgages and other direct consumer benefits from various relief programmes, the bank said.
“We believe that this settlement is in the best interests of our shareholders, and allows us to move forward and to focus on the future, not the past,” Citigroup’s chief executive, Michael L Corbat, said in a statement.
The bank said the settlement would result in a charge of about $3.8 billion before taxes in the second quarter. The bank is also scheduled to announced its second-quarter results on Monday morning.
That disparity stemmed largely from a disagreement over how to calculate the suspected harm that Citigroup’s mortgage securities caused investors. Citigroup linked its initial offer to the bank’s relatively small share of the market for mortgage securities, people briefed on the talks said. The Justice Department, however, rejected that argument, emphasising instead what it saw as Citigroup’s level of culpability based on emails and other evidence it had uncovered.
“Despite the fact that Citigroup learned of serious and widespread defects among the increasingly risky loans they were securitising, the bank and its employees concealed these defects,” Holder said.
He said the settlement on Monday did not absolve “Citigroup or its individual employees” from facing future criminal charges.
The deal also sets the stage for negotiations between the Justice Department and Bank of America, which had essentially been on hold while Citigroup worked out an agreement. In recent months, talks between Bank of America and prosecutors had stalled over a disagreement about whether the bank should be held liable for mortgage problems by its Merrill Lynch unit. The bank had argued that it did not want to go through with its purchase of Merrill in the depths of the financial crisis, but was pressured by regulators to complete the acquisition.
The Citigroup deal was also intended to send a message to other banks like Bank of America that future penalties would be determined largely by the evidence.
At one point last month, the Justice Department delayed a plan to sue Citigroup, fearing that the arrest of a lead suspect in the 2012 attacks on the American consulate in Benghazi, Libya would overshadow their case against the bank.
The settlement, announced on Monday morning, includes a $4-billion cash penalty to the Justice Department — the largest payment of its kind — as well as $2.5 billion in so-called soft dollars earmarked for aiding struggling consumers and $500 million to state attorneys general and the Federal Deposit Insurance Corporation.
The deal, after months of contentious negotiations, averts a lawsuit that would have proved costly for both sides and resolves a civil investigation into Citigroup’s packaging and selling of mortgage securities that soured during the financial crisis, causing large losses to investors.
“The bank’s misconduct was egregious,” Attorney General Eric H Holder Jr said in a statement. “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”
The consumer relief will involve financing for the construction and preservation of affordable multi-family rental housing, principal reduction and forbearance for residential mortgages and other direct consumer benefits from various relief programmes, the bank said.
“We believe that this settlement is in the best interests of our shareholders, and allows us to move forward and to focus on the future, not the past,” Citigroup’s chief executive, Michael L Corbat, said in a statement.
The bank said the settlement would result in a charge of about $3.8 billion before taxes in the second quarter. The bank is also scheduled to announced its second-quarter results on Monday morning.
That disparity stemmed largely from a disagreement over how to calculate the suspected harm that Citigroup’s mortgage securities caused investors. Citigroup linked its initial offer to the bank’s relatively small share of the market for mortgage securities, people briefed on the talks said. The Justice Department, however, rejected that argument, emphasising instead what it saw as Citigroup’s level of culpability based on emails and other evidence it had uncovered.
“Despite the fact that Citigroup learned of serious and widespread defects among the increasingly risky loans they were securitising, the bank and its employees concealed these defects,” Holder said.
He said the settlement on Monday did not absolve “Citigroup or its individual employees” from facing future criminal charges.
The deal also sets the stage for negotiations between the Justice Department and Bank of America, which had essentially been on hold while Citigroup worked out an agreement. In recent months, talks between Bank of America and prosecutors had stalled over a disagreement about whether the bank should be held liable for mortgage problems by its Merrill Lynch unit. The bank had argued that it did not want to go through with its purchase of Merrill in the depths of the financial crisis, but was pressured by regulators to complete the acquisition.
The Citigroup deal was also intended to send a message to other banks like Bank of America that future penalties would be determined largely by the evidence.
At one point last month, the Justice Department delayed a plan to sue Citigroup, fearing that the arrest of a lead suspect in the 2012 attacks on the American consulate in Benghazi, Libya would overshadow their case against the bank.
©2014 The New York Times News Service