Citigroup Settles Faulty RMBS Probe For $7 Billion

Citigroup will pay $7 billion to resolve allegations brought by federal and state officials that it misled investors about the quality of residential mortgage-backed securities (RMBS) sold in the run-up to the 2008 financial crisis.

Specifically, the bank will pay $4 billion in civil penalties to the U.S. Department of Justice (DOJ), about $300 million to state attorneys general and about $200 million to the Federal Deposit Insurance Corp. (FDIC). In addition, it will pay about $2.5 billion in various forms of consumer relief by the end of 2018.

Citigroup took a $3.7 billion charge in the second quarter ended June 30 to cover the cost of the settlement, the bank says in a release.

Negotiations between the bank and federal authorities temporarily stalled in mid-June after the bank's offer of about $4 billion to settle the suit failed to satisfy prosecutors. Government officials had initially demanded more than $10 billion, according to a Bloomberg News report.

In its suit, the DOJ claimed that Citibank packaged thousands of residential mortgages into securities and sold them for tens of billions of dollars to investors, including federally insured financial companies, and that the bank had misrepresented the quality of loans in 45 bond deals. The bank said it later learned through quality control checks that the loans in question were poorly underwritten and thus, didn't conform to the representations made to investors.

As part of the suit, Citigroup has also agreed to install a monitor to evaluate its compliance with the terms of the settlement.

‘The comprehensive settlement announced today with the U.S. Department of Justice, state attorneys general and the FDIC resolves all pending civil investigations related to our legacy RMBS and [collateralized debt obligation] underwriting, structuring and issuance activities,’ said Michael Corbat, CEO of Citigroup, in a statement. ‘We also have now resolved substantially all of our legacy residential mortgage-backed securities and collateralized debt obligation 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.’


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