By Dow Jones Business News,
July 14, 2014, 07:53:00 AM EDT
By Christina Rexrode and Andrew Grossman
Citigroup Inc. will pay $7 billion to settle the U.S. government's accusations that it misled investors about the
quality of mortgage securities it sold in the run-up to the financial crisis.
The bank, which announced the deal early Monday, ahead of a Justice Department news release, will pay a $4 billion
civil penalty to the Justice Department, plus $500 million to the Federal Deposit Insurance Corp. and several states.
Citigroup also agreed to spend $2.5 billion on "consumer relief," where it will get credit for modifying mortgages for
struggling homeowners and similar actions.
"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," said Citigroup Chief Executive Officer Michael Corbat in a statement.
The pending settlement and other legal problems have been an overhang for the bank. Citigroup's penalty, unlike a
similar settlement between the Justice Department and J.P. Morgan Chase & Co. in November, releases it from potential
liability for CDOs, or collateralized debt obligations, not just mortgage securities. The settlement covers residential
mortgage-backed securities and CDOs issued in the run-up to the financial crisis, from 2003 to 2008.
The bank has "now resolved substantially all of our legacy RMBS and CDO litigation," Mr. Corbat said in his
Citigroup, which will release second-quarter earnings results later this morning, said it would take a pretax
charge of about $3.8 billion for the quarter.
Attorney General Eric Holder is expected to say, at a news conference later today, that the bank engaged in "
egregious" misconduct by covering up problems with loans it was packaging into securities and selling to investors.
"Despite the fact that Citigroup learned of serious and widespread defects among the increasingly risky loans they
were securitizing, the bank and its employees concealed these defects," Mr. Holder plans to say, according to a prepared
copy of his remarks.
Mr. Holder plans to say that the bank's misdeeds--which it admitted to "in great detail" as part of the settlement-
-allowed it to dupe investors and win market share. That, he said, hurt endowment and pension funds, municipalities and
In his prepared remarks, Mr. Holder noted the civil settlement doesn't rule out future criminal charges against
Citigroup or its employees.
Citigroup's$7 billion agreement comes after a long negotiation. The bank in May had opened with an offer to pay $
363 million in cash, plus more for "consumer relief," or money the bank will set aside to help customers in financial
trouble. The Justice Department came back with a far higher number: $12 billion, including consumer relief.
The bank had argued that it shouldn't have to pay so much because it was a relatively small player in the mortgage-
securities market. But the Justice Department lawyers saw Citigroup's conduct as so egregious that it merited a high
At one point in mid-June, the government came to within a day of filing a lawsuit against the bank.
Mr. Holder is expected to say later today that it was "not at all inevitable in these last few weeks that this case
would be resolved out of court. But in all of its cases, the Justice Department is committed to delivering outcomes that
are commensurate with the misconduct at issue."
Citigroup is the second of the U.S. megabanks to settle with the government over mortgage securities. J.P. Morgan
settled similar charges in November for $13 billion. Talks between the government and Bank of America Corp. are under
The negotiations were seen as a flash point for both Mr. Corbat, who was given the top job in 2012 with a mandate
to improve relations with the government, and for Mr. Holder, who has faced constant criticism that his Justice
Department has been too soft on banks.
In May, the Justice Department extracted from Swiss bank Credit Suisse Group AG its first guilty plea from a major
financial institution in two decades, and French bank BNP Paribas SA pleaded guilty last week to charges over its
dealings with countries sanctioned by the U.S.
It has been a tough year for Citigroup so far. In February it disclosed an alleged accounting fraud against its
Mexico unit. In March the Federal Reserve rejected its stress-test request for a higher dividend and share buyback,
citing a need for the bank to improve its overall risk managements systems.
Write to Christina Rexrode at email@example.com and Andrew Grossman at firstname.lastname@example.org
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