Citigroup Inc and US authorities were yesterday set to announce a US$7 billion agreement to end probes of the bank’s sales of mortgage-backed bonds, according to a person with direct knowledge of the matter.
The deal, signed over the weekend, requires the firm to pay US$4 billion to the US Justice Department, about US$300 million to state attorneys general and about US$200 million to the Federal Deposit Insurance Corp, and to provide US$2.5 billion in relief for consumers, the person said, asking not to be named because the talks are private. The settlement includes a statement of facts, outlining the allegations, the person said.
Citigroup, the third-biggest US bank, was among lenders including Bank of America Corp investigated by the US Justice Department for allegedly misrepresenting the quality of mortgage-backed bonds sold to investors as housing prices plummeted. JPMorgan Chase & Co, the biggest bank, agreed in November to pay US$13 billion to resolve similar federal and state probes. The government has sought about US$17 billion from Bank of America, a person familiar with those talks has said.
Mark Costiglio, a spokesman for New York-based Citigroup, declined to comment on the settlement.
Citigroup and government officials have been discussing a resolution since April, a person familiar with the matter said last month. Discussions broke down on June 9 after the bank’s settlement offers failed to satisfy prosecutors, the person said. Government officials had demanded more than US$10 billion to resolve the issue, while Citigroup raised its offer to less than US$4 billion, the person said.
Citigroup’s lawyers had argued that the should face a far smaller penalty than JPMorgan because Citigroup sold fewer mortgage bonds, the person with knowledge of the deal said.
The government rejected that position, citing what it considered Citigroup’s level of culpability based on e-mails, internal bank documents and the rates at which loans backing its bonds soured, the person said. Investigators also focused on how Citigroup employees “waived” loans that were supposed to be subject to certain criteria for inclusion in the securities, the person said.
As talks stalled in mid-June, the Justice Department told Citigroup it was planning a news conference to announce a lawsuit against the company, the person said. The arrest of a suspect in the attack on the US embassy in Libya prompted government prosecutors to temporarily postpone the announcement, concerned that the news from Benghazi would overshadow the Citigroup case, the person said. The bank and investigators reached a deal in the weeks that followed.
From 2005 through 2008, Citigroup sold about $91 billion of mortgage loans packaged into so-called private-label mortgage debt, which isn’t guaranteed or issued by government agencies, according to the bank’s annual securities filing.
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