Citigroup in $1.1bn deal over sub-prime mortgage claims
US BANKING giant Citigroup has agreed a $1.12 billion (£670 million) deal to settle claims brought by investors who were sold packages of sub-prime mortgages in the run-up to the financial crisis.
It is the latest billion dollar-plus settlement that a bank has signed up to as the industry battles to draw a line under alleged misdeeds committed in the lead-up to the financial shock that devastated Western economies.
Citi will also incur an additional related $100 million charge against its results for the first quarter of the year. Fees for the plaintiffs’ lawyers, Gibbs & Bruns, will be paid in addition to rather than out of the settlement.
The deal involves 18 big institutional investors and resolves what the bank described as a “significant legacy issue”. “We are pleased to put it behind us,” it said.
The investors have asked 68 separate Citi-sponsored mortgage securitisation trusts holding nearly $60 billion of home loans packaged and sold by Citi to accept the offer. Ironically, many of their trustees are banks, including HSBC and Deutsche Bank.
They have until June 30 to sign up. Approval will also have to be secured by America’s Federal Housing Finance Agency.
According to the Financial Times, American and overseas banks have paid out a staggering $100 billion-plus in legal settlements of this type since 2007.
A number of other banks have either signed up to similar deals or are closing in on them. Last November the same law firm, then representing 21 institutional investors, sealed a settlement that saw JP Morgan pay out $4.5 billion to settle similar mortgage repurchase and servicing claims for 330 trusts.
Citi also last year agreed to pay bondholders $730 million to settle claims that the bank concealed its exposure to billions of dollars of toxic mortgage assets before the financial crisis.
Settling the case, while expensive, will at least provide some relief to the bank, which could endure a bruising few weeks.
Reports emanating from its US home have suggested that Citi may miss a key profitability target after the Federal Reserve last month rejected its capital plan. It is prevented from hiking its dividend or increasing share buybacks as a result.
