Citigroup reached a settlement with the Justice Department to settle a federal investigation into the mortgage securities the bank sold in the years leading up to the financial crisis. The settlement, announced Monday morning, will cause the bank to pay $7 billion.
The deal includes a $4 billion cash penalty to the Justice Department as well as $2.5 billion in the form of so-called soft dollars, which are earmarked for helping struggling consumers, according to the New York Times. Finally, the bank will also pay $500 million to state attorneys general and the Federal Deposit Insurance Corporation.
The Citigroup deal is the largest of its kind and comes after months of contentious negotiations. It averts a lawsuit that would have been costly for both sides and also resolves a civil investigation into the bank’s packaging and selling of mortgage securities that soured during the financial crisis.
Attorney General Eric Holder released a statement about the deal, saying, “The bank’s misconduct was egregious. As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”
The consumer relief portion of the Citigroup settlement will involve financing for the construction and preservation of affordable multifamily rental housing. It also includes principal reduction and forbearance for residential mortgages and other direct consumer benefits from relief programs.
MSN News reports that Holder added, “The penalty is appropriate given the strength of the evidence of the wrongdoing committed by Citi.” He went on to say, “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.”
Citigroup is the second major bank to settle with the Justice Department since President Barack Obama ordered the formation of a task force to investigate mortgage securities and other loans that caused the 2008 financial crisis. JPMorgan Chase & Co., the largest U.S. bank, agreed last year to pay $13 billion to settle government probes related to the packaging of toxic mortgages.
Bank of America Corp has not settled its case but has been negotiating with the Justice Department over similar claims.
Citigroup’s chief executive, Michael L. Corbat, stated of Monday’s settlement, “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.”
Despite the settlement, Holder cautioned that its doesn’t absolve “Citigroup or its individual employees” from facing future criminal charges.
[Image by Herve Boinay]