Citi to pay $7 billion in Justice settlement
Post# of 63898
Posted On: 07/14/2014 3:42:28 PM
Citi to pay $7 billion in Justice settlement
WASHINGTON — Citigroup has agreed to pay $7 billion as part of a landmark Justice Department settlement for its role in the sale of risky, mortgage-based securities in the run-up to the financial crisis, Attorney General Eric Holder announced Monday.
The agreement includes $4 billion which Holder said was a "record" civil penalty of its kind and "appropriate given the strength of the evidence of the wrongdoing committed by Citi." The company will pay $500 million to state attorneys general and the Federal Deposit Insurance Corp. The remaining $2.5 billion will go to help consumers struggling with mortgages and other problems from the 2007-2009 financial crisis.
"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,'' Holder said in a statement Monday. "The bank's conduct was egregious. And under terms of this settlement, the bank has admitted to its misdeeds in great detail.''
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Because of the bank's assertions that its "toxic financial products were sound,'' Holder said Citi was able to pad its own financial position.
"They did so at the expense of millions of ordinary Americans and investors of all types, including other financial institutions, universities and pension funds, cities and towns and even hospitals and charities,'' the attorney general said. "Ultimately, these investors suffered billions of dollars in losses when Citi's false and fraudulent claims came crashing down.''
Last year, JPMorgan Chase settled a similar dispute with Justice, paying out $13 billion in a settlement.. Of that settlement, $2 billion was a civil penalty.
Associate Attorney General Tony West said hundreds of thousands of homeowners could potentially benefit from the Citi deal and other recent bank settlements.
Monday's Citi deal does not "absolve'' Citi or its employees from possible criminal charges, Holder said.
"We believe the size and scope of this resolution goes beyond what could be considered the mere cost of doing business,'' he said. "In fact, it was not all inevitable in the these last few weeks that this case would be resolved out of court.''
The bank has been under investigation by federal authorities for faulty mortgage securities that fueled the housing bubble a decade ago.
In a review of every residential mortgage backed security issued or underwritten by Citigroup in 2006 and 2007, prosecutors found "that the misconduct in Citigroup's deals devastated the nation and the world's economies, touching everyone," said Loretta Lynch, the U.S attorney in New York's Eastern District.
Colorado U.S. Attorney John Walsh said Citi-approved loans that had been previously rejected based on client income statements, credit histories and other assessments.
The announcement came just before Citigroup's second-quarter earnings report. Citigroup said it took a $3.8 billion pre-tax charge because of the settlement. But excluding charges and adjustments, Citigroup's earnings were better than Wall Street estimates.
Shares were up 3.6% to $48.70 in early Monday trading.
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