Citigroup to pay $7 billion to settle U.S. mortgage probe

Mon Jul 14, 2014 1:30pm EDT
 
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By Aruna Viswanatha

(Reuters) - Citigroup Inc has agreed to pay $7 billion to resolve claims it misled investors about shoddy mortgage-backed securities in the run-up to the financial crisis, in a deal that includes the largest civil fraud penalty ever levied by the U.S. Justice Department.

The settlement, announced on Monday, is more than twice what many analysts expected but less than the $12 billion the government sought in negotiations with Citi C.N, the third largest U.S. bank.

The accord came roughly six years after the height of the financial crisis. It is one of several Justice Department probes into the packaging and sale of risky home loans.

Many of the securities were marketed as safe, even though the banks knew they were destined to collapse. The widespread implosion of the securities fueled the 2007-2009 financial crisis.

Bank of America Corp BAC.N has been negotiating with the Justice Department over similar claims, though those talks have stalled in recent weeks amid a multibillion dollar difference in proposed penalties.

"We're not letting up, and we're not going away," Tony West, the Justice Department's No. 3 official, said in announcing the Citigroup deal.

"We will continue to pursue these cases," he said, adding that related announcements could come "in the very near future."

Citigroup acknowledged it was aware that "significant percentages" of sample loans did not comply with underwriting guidelines but the bank pooled them into securities anyway.   Continued...

 
People walk past a Citibank branch in New York October 15, 2013. REUTERS/Andrew Kelly