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Citigroup mortgage settlement
Citigroup settles mortgage probe with DOJ for $7 billion.
ABC World News (7/14, story 6, 0:20, Muir) reported that Citigroup “will pay about seven billion dollars for its role in the recession,” and that $2.5 billion “will be used to help families struggling to pay their mortgage.”
The CBS Evening News (7/14, story 4, 2:35, Pelley, 5.08M) reported that Citigroup “sold securities made up of risky subprime mortgages.” CBS noted that in an email “at the time obtained by the Justice Department one Citigroup trader said he would not be surprised if half of these loans went down.”
The New York Times (7/15, Corkery, Subscription Publication, 9.65M) reports that the settlement “includes a $4 billion cash penalty to the Justice Department – the largest payment of its kind – as well as $2.5 billion in so-called soft dollars earmarked for aiding struggling consumers and $500 million to state attorneys general and the Federal Deposit Insurance Corporation.” The deal, announced after “months of contentious negotiations, averts a lawsuit that would have proved costly for both sides and resolves a civil investigation into Citigroup’s packaging and selling of mortgage securities that soured during the financial crisis, causing large losses to investors. ‘The bank’s misconduct was egregious,’ Attorney General Eric H. Holder Jr. said in a statement. ‘As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.’”
The AP (7/15, Tucker) reports that Citigroup admitted “to a pattern of deception that” Holder “said ‘shattered lives’ and contributed to the worst financial crisis in decades, the Justice Department said Monday.” The settlement “represents a moment of reckoning for one of the country’s biggest and most significant banks, which is now accountable for providing some financial support to Americans whose lives were dismantled by the largest economic meltdown since the Great Depression.” Holder said the settlement “does not preclude the possibility of criminal prosecutions for the bank or individual employees in the future.”
The Wall Street Journal (7/15, Grossman, Rexrode, Subscription Publication, 5.51M) reports that Citigroup admitted in a statement of facts in the settlement that it ignored warnings from inside and outside the bank that many of the loans it had packaged had serious flaws, and that it concealed knowledge of those flaws from investors.
NPR (7/15, Calamur, 519K) reports in its “The Two Way” blog that the settlement “frees Citi from potential liability for collateralized debt obligations (CDOs) as well as mortgage securities. ‘The comprehensive settlement announced today with the U.S. Department of Justice, state attorneys general and the [Federal Deposit Insurance Corp.] resolves all pending civil investigations related to our legacy RMBS and CDO underwriting, structuring and issuance activities,’ Citigroup CEO Michael Corbat said in the statement. ‘We also have now resolved substantially all of our legacy RMBS and CDO litigation.’”
The Washington Times (7/15, Swarts, 455K) reports that few “bank employees, executives or workers have been convicted of any crimes connected to the risky subprime mortgages that spurred the collapse that led to the Great Recession. ‘In the context of the damage done, the damage even described by the attorney general, we’re not even in the same ballpark,’ said Bartlett Naylor, a financial analyst for Public Citizen, a nonprofit that represents consumer interests.” Holder said at a news conference on Monday, “Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last.”
Politico (7/15, Prior, 637K) reports that the settlement “marks another notch for a task force formed by President Barack Obama in 2012 to investigate whether major banks knew they were packaging shoddy loans into securities sold to investors, which included pension funds, local governments and other financial institutions.” The settlement “follows several months of talks that at one point broke down over the size of the penalty and federal authorities last month were preparing to sue the bank before the negotiations got back on track.”
The New York Daily News (7/15, Friedman, 4.36M) reports that the investigation into Citigroup “was spearheaded by the offices of Loretta Lynch, the U.S. attorney for the Eastern District of New York, and John Walsh, the U.S. attorney in Denver.” Lynch, “who joined Holder at the news conference Monday, noted that investors who bought the bogus securities included federally-insured financial institutions along with state, local and union pension funds and colleges, hospitals and others. ‘These are our neighbors in Colorado, New York and around the country, hard-working people who saved and put away for retirement, only to see their savings decimated,’ she said.”
The Sacramento (CA) Bee (7/14, Kasler, 644K) reports that California’s share of the settlement “includes $102.7 million to be split among the state’s two big public pension funds, CalPERS and CalSTRS, according to state Attorney General Kamala Harris’ office.” California “will also receive at least $90 million in various forms of ‘consumer relief,’ including loan modifications and donations to nonprofits that provide legal and housing assistance to borrowers.”
The Boston Globe (7/15, Fernandes, 1.62M) reports that Massachusetts “consumers, investors and taxpayers will get at least $55.7 million in relief from Citigroup Inc.’s multi-billion dollar settlement with the US Department of Justice over the bank’s risky mortgage-backed securities, which collapsed in value during the housing bust.” Massachusetts “consumers will receive at least $25 million in relief through direct payments through mortgage principal reductions and loan modifications. About $6.5 million of the Massachusetts settlement will go to the Pension Reserves Investment Management Board, which is responsible for investing public employee pensions and bought the mortgage-backed securities. The state’s general fund will get the remaining $24.2 million.”
The AP (7/15) reports that Massachusetts Attorney General Martha Coakley said that more than $15 million “would go to direct consumer relief, and $6.5 million would help offset losses in the state’s pension fund.”
The Denver Business Journal (7/15, Subscription Publication, 71K) reports in its “Finance Etc” blog that if Citigroup “fails to live up to its agreement by the end of 2018, it must pay liquidated damages in the amount of the shortfall to NeighborWorks America, a non-profit organization and leader in providing affordable housing and facilitating community development. ‘Today’s $7 billion settlement is a major step toward restoring public confidence in those markets,’ said John Walsh, U.S. attorney for Colorado. ‘Due to the tireless work by the Department of Justice, Citigroup is being forced to take responsibility for its home mortgage securitization misconduct in the years leading up to the financial crisis.’”
The AP (7/15) reports that Illinois’ share of the settlement “is about $84 million.” Illinois Attorney General Lisa Madigan told reporters in Chicago that “about $40 million will go to consumer relief and about $44 million will help recover losses incurred by Illinois’ pensions systems.” Madigan “says the money will provide ‘much-needed aid to Illinois homeowners.’”
The Los Angeles Times (7/14, Puzzanghera, Reckard, 3.46M) reports that the settlement “follows a series of similar settlements by Wall Street firms that packaged high-risk loans during the housing boom to create bonds they sold to investors around the world.” Holder said the settlement “goes beyond what could be considered the mere cost of doing business,” but “although the settlement would help many victims, he said it would not completely make up for the damage the bank’s actions caused. ‘The reality is that for substantial numbers of people, we will not be able to make them whole,’ he said.”
Fox News (7/14, 6.72M) reports that Associate Attorney General Tony West said on Monday that “more American banks could be taken to task for their handling of mortgage-backed securities in the ‘very near future.’
The Richmond (VA) Times-Dispatch (7/15, Gilligan, 333K) reports that the Citigroup settlement “comes months after a similar – but much larger – deal between the Justice Department and JPMorgan Chase & Co., the nation’s biggest bank.” JP Morgan, after “months of negotiations,” last year “agreed to pay $13 billion after an investigation into toxic mortgage-backed securities.”
The Los Angeles Times (7/15, Reckard, Puzzanghera, 3.46M) reports that California “will be among several states that will share in the settlement,” receiving $102.7 million from Citi to cover losses at its public pension funds. California is also guaranteed “at least $90 million in consumer relief, the most of any state.” According to the article, buyers that suffered losses from the shoddy mortgage-backed loans include “Fannie Mae and Freddie Mac, public employee retirement funds and smaller banks and credit unions that failed.”
Danielle Douglas writes in the Washington Post (7/15, Douglas, 4.22M) “Wonkblog” that although no bank executives were named in the civil agreement, “prosecutors said that does not preclude the department from taking civil or criminal action against individuals in the future.” The piece also notes that the investigation concerned mortgage-backed securities sold by the bank between 2003 and 2008.
Similarly, CBS News (7/14, Berr, 5.21M) reports on its website that the settlement “may not end the financial giant’s legal woes.” Cornell Law School professor Robert Hockett stated that “DOJ appears to have been confident all along” that it has the evidence needed to bring criminal charges against Citi. However, CBS says that Justice has thus far “shown little appetite for pursuing criminal prosecutions of Wall Street banks linked to the housing crash.”
The Hill (7/15, Needham, Goad, 237K) reports that Attorney General “Holder and associate Attorney Gen. Tony West said additional settlements were likely to follow.” West “said ‘several’ banks remain the focus of Justice Department probes, though he declined to specify which or exactly how many.”
In a piece for Bloomberg View (7/14, Levine), Matt Levine writes that that statement of facts that Citigroup stipulated to “is a very strange document.” The document states that Citi improperly securitized loans a vendor had rated as “bad,” but “provides no insight into why so many bad loans were securitized” and “more importantly it provides no insight into what the results were.”
In a piece for the Slate Magazine (7/14, Weissmann, 14.77M) “Moneybox” blog, Jordan Weissmann writes that despite the “hefty sum,” Citigroup is essentially “paying for the behavior that capsized the global economy by handing over a few billion dollars, then moving on.” He notes that the bank’s stock was up slightly on Monday morning on otherwise strong earnings.
The New York Post (7/15, Dugan, 2.77M) reports, “The size of the fine—more than three times what analysts forecast — is tied, in part, to the bank knowing it was hiding risks from investors, Attorney General Eric Holder said in prepared remarks.”
The Charlotte (NC) Observer (7/15, Roberts, 519K) reports that following the Citigroup settlement, “attention shifts to a proposed resolution with Bank of America to end similar probes.”