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
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before