Latest banking scandal costs Citigroup $7bn

Under the settlement, Citigroup has agreed to pay $2.5bn to help consumers it harmed

New York

Citigroup agreed a $7bn (£4bn) settlement yesterday to resolve civil claims that it misled investors about the quality of its toxic mortgage-backed bonds sold before the 2008 financial crisis. The deal brings to an end months of horse-trading and political posturing between the bank and the US Department of Justice.

The department, anxious to prove it is punishing financial institutions that helped cause the financial crisis, stressed that a $4bn civil penalty included in the settlement is the largest ever of its kind and that the deal does not absolve Citigroup or its employees from possible criminal charges in the future.

However, the deal does avoid a department lawsuit that was in the making until last month, when an unexpected news headline caused a change of plan, according to The New York Times.

The Justice Department feared news that a suspect in the attack on the United States Mission in Benghazi, Libya’s second-biggest city, had been captured would overshadow its case against Citigroup, so it delayed the lawsuit – creating an opening for 11th-hour negotiations that eventually led to yesterday’s deal.

“This historic penalty is appropriate, given the strength of the evidence of the wrongdoing committed by Citi,” the US Attorney General Eric Holder said.

“The bank’s activities contributed mightily to the financial crisis that devastated our economy in 2008… Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last.”

As part of the settlement, the Justice Department said Citigroup “acknowledged it made serious misrepresentations to the public – including the investing public – about the mortgage loans it securitised in residential mortgage-backed securities”.

The Justice Department said Citigroup securitised and sold residential mortgage-backed bonds with underlying mortgage loans that it knew had defects. 

One Citigroup trader, the department said, wrote in an email that he “went through the diligence reports and think[s] [they] should start praying … [he] would not be surprised if half of these loans went down… It’s amazing that some of these loans were closed at all.” Despite knowing many of the mortgages were toxic, Citigroup went ahead and securitised the loan pools containing the defective mortgages and sold the resulting bonds to investors for billions of dollars. 

Citigroup’s conduct, along with similar behaviour by other banks that bundled toxic loans into bonds and misled the investors who bought those securities, contributed greatly to the financial crisis, the department said.

Under the settlement,  Citigroup has agreed to pay $2.5bn to help consumers it harmed. This includes loan modifications, providing helping with refinancing, down payments and closing costs, and donations to organisations that help to create affordable rental housing for low-income families.

Michael Corbat, the chief executive of Citigroup, said: “We also have now resolved substantially all of our legacy RMBS [residential mortgage-backed securities] and CDO [collateralised debt obligations] litigation. 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.”

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones