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 special investigation by Andy McSmith
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: Customer Relations Officer

£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Guru Careers: Executive Assistant / PA

£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable