Citigroup will pay $7 billion to settle the U.S. government's accusation that it packaged poor quality mortgages into securities to sell to investors. That is said to be one of the reasons of the world financial crisis in 2007-2009. Citigroup is to become the second largest financial institution after JP Morgan Chase to resolve Justice Department probes into the packaging and sale of risky mortgage loans.
Citigroup is the U.S. third biggest bank by assets: on March 31, 2014 the bank reported total assets of $1.9 trillion.
The settlement allows Citigroup to settle claims of the Justice Department, several states and the Federal Deposit Insurance Corporation. The regulators accused the bank that it offered investors lower grade residential mortgage-backed securities and CDOs.
Citigroup agreed to pay $4.5 billion and allocate $2.5 billion for "consumer relief" (an aid to low-income tenants and struggling homeowners). An aggravating circumstance was the fact the bank realized the seriousness of its violations, Reuters said.
According to Reuters’ sources, the settlement capped months of negotiations, during which the U.S. government threatened to sue the bank demanding to pay up to $12 billion. Nevertheless, even the final amount of $7 billion surprised most analysts and representatives of the bank, who hoped to get away with a black eye. For comparison’s sake, Citigroup’s net income in 2013 came in at 13.7 billion.
According to the Wall Street Journal, the government disappointed by intractability of the Citigroup planned to announce a lawsuit against it on June 18.
Top Justice Department officials were preoccupied with the capture of a suspect in the 2012 attack on U.S. diplomatic facilities in Benghazi, Libya and thus postponed a planned announcement.
Currently, one more bank - Bank of America is negotiating with the regulators. Late in 2013 Deutsche Bank AG paid 1.4 billion euros to settle the U.S. government claims.
In November 2013 JP Morgan reached a record $13 billion settlement with federal and state authorities. Bank of America is the next in line. It might pay a record $17 billion, Bloomberg said citing sources close to the mater.
Meanwhile, Citigroup has reported net income for the second quarter 2014 of $181 million (or $0.03 per share) – 23 times less than its quarterly revenue a year ago (4.2 billion). The penalty by the U.S. officials is said to be the reason: Citigroup has spent $3.7 billion. However, the stock market seemed to be happy with the news: Citigroup shares rose 3.6%.
