Citigroup just agreed to a $7 billion settlement with the U.S. Justice Department. The settlement involves what USA Today described as “misdeeds” related to the sale of mortgage-backed securities associated with the 2008 financial crisis, according to an announcement just made by Attorney General (AG) Eric Holder. The full settlement involves a $4 billion penalty […]
Citigroup just agreed to a $7 billion settlement with the U.S. Justice Department.
The settlement involves what USA Today described as “misdeeds” related to the sale of mortgage-backed securities associated with the 2008 financial crisis, according to an announcement just made by Attorney General (AG) Eric Holder. The full settlement involves a $4 billion penalty that the AG said was a “record” civil penalty of its kind and is “appropriate given the strength of the evidence of the wrongdoing committed by Citi.” Citigroup will also be paying another $500 million to state AGs and the Federal Deposit Insurance Corporation (FDIC); the remaining $2.5 billion is slated for consumers who are struggling with mortgages and other issues that arose from the 2007-2009 financial crisis, wrote USA Today.
“Despite the fact that Citigroup learned of serious and widespread defects among the increasingly risky loans they were scrutinizing, the bank and its employees concealed these defects,” Holder said in today’s announcement. “The bank’s conduct was egregious. And under terms of this settlement, the bank has admitted to its misdeeds in great detail.”
It was because Citigroup asserted that its “toxic financial products were sound,” that the financial giant was able to increase its financial position, according to the AG. “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,” Holder added. “Ultimately, these investors suffered billions of dollars in losses when Citi’s false and fraudulent claims came crashing down,” USA Today reported.
According to the AG, reported USA Today, the agreement does not “absolve” Citi or its employees from potential criminal charges in the future. “We believe the size and scope of this resolution goes beyond what could be considered the mere cost of doing business,” he noted. “In fact, it was not all inevitable in the these last few weeks that this case would be resolved out of court.” Citigroup as been the focus of probe conducted by federal authorities for faulty mortgage securities that drove the housing crisis.
The review involved all residential mortgage-backed securities issued or underwritten by Citigroup in 2006-2007; prosecutors discovered “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, according to USA Today.
According to The Wire, negotiations were in jeopardy of collapse last week; however, Citigroup confirmed by press release their plans to pay $4.5 billion in cash and $2.5 billion in consumer relief, which is expected as financing for construction, preservation of affordable rental housing, principal reduction, forbearance of residential loans, and other borrower relief programs, all by year-end 2018. Also as part of the settlement, Citigroup “will take a charge of approximately $3.8 billion pre-tax in the second quarter of 2014,” according to NewsWire.
In 2013, JPMorgan Chase, the country’s largest bank, settled a similar issue with the Justice Department, paying $13 billion to settle the matter; $2 billion of that involved a civil penalty to settle Justice Department claims, USA Today noted.
