Sunday, April 19, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Citigroup to pay $7B in subprime mortgages probe

By
July 15, 2014 |

WASHINGTON — Citigroup agreed Monday to pay $7 billion to settle a federal investigation into its handling of risky subprime mortgages, admitting to a pattern of deception that Attorney General Eric Holder said “shattered lives” and contributed to the worst financial crisis in decades.

The settlement represents a moment of reckoning for one of the country’s biggest and most significant banks, which will now be responsible for providing financial support to Americans whose lives were dismantled by the largest economic meltdown since the Great Depression.

Besides a $4 billion civil penalty, the bank will also pay $2.5 billion in consumer relief to help borrowers who lost their homes to foreclosure and settle claims from state attorneys general and the Federal Deposit Insurance Corporation. The settlement does not preclude the possibility of criminal prosecutions for the bank or individual employees in the future, the Justice Department said.

The $7 billion settlement, which represents about half of Citigroup’s $13.7 billion profit last year, is the latest substantial penalty sought for a bank or mortgage company at the epicenter of the housing crisis. The Justice Department, criticized for not being aggressive enough in targeting financial misconduct, has in the last year reached a $13 billion deal with JPMorgan Chase & Co., the nation’s largest bank, and also sued Bank of America Corp. for misleading investors in its sale of mortgage-linked securities.

Yet the settlement packages pale in size compared to the broader damages caused by the Great Recession. The unemployment rate spiked to 10 percent as millions lost their jobs and their homes, causing losses that totaled in the trillions of dollars. And consumers groups criticized the settlement as a sweetheart deal for a major bank.

“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, financial policy advocate for Public Citizen, which represents consumer interests.

The settlement stems from the sale of toxic securities made up of subprime mortgages, which led to both the housing boom and bust that triggered the Great Recession at the end of 2007. Banks, including Citigroup, minimized the risks of subprime mortgages when packaging and selling them to mutual funds, investment trusts and pensions, as well as other banks and investors.

The securities, which contained so-called residential mortgage-backed securities, plunged in value when the housing market collapsed in 2006 and 2007 and investors suffered billions of dollars in losses. Those losses triggered a financial crisis that pushed the economy into the worst recession since the 1930s.

One Citigroup trader wrote in an internal email that he “would not be surprised if half of these loans went down” and said it was “amazing that some of these loans were closed at all,” and the bank itself increased its profits and share of the market, the Justice Department said.

“They did so at the expense of millions of ordinary Americans and investors of all types — including other financial institutions, universities and pension funds, cities and towns, and even hospitals and religious charities,” Holder said at a news conference announcing the settlement.

Justice Department officials called the $4 billion the largest civil penalty of its kind and said it will not be tax-deductible.

The $2.5 billion in consumer relief is directed at underwater homeowners and borrowers in areas of the country with high numbers of distressed properties and foreclosures. The sum includes refinancing for homeowners struggling with high interest rates on their mortgages, closing cost help for borrowers who lost homes to foreclosure and financing for construction and affordable rental housing.

Citigroup should have the capital needed to absorb the $7 billion settlement, said Gerard Cassidy, a managing director and analyst at RBC Capital Markets. In fact, investors were relieved that the issue was no longer confronting the bank and pushed up Citigroup’s stock price on Monday.

But the “unintended consequence” of the settlement is that banks such as Citigroup are less likely to lend, hurting would-be homebuyers with student debt who are seeking a mortgage.

“Banks won’t go near those customers because, in our opinion, the severity of the penalties that they paid,” Cassidy said.

JPMorgan’s $13 billion deal followed an investigation into similar toxic-mortgage backed securities. That deal included $4 billion in relief to homeowners affected by the bad loans. Citigroup argued that it should settle for a comparatively modest sum because it issued fewer mortgages than JP Morgan Chase the subsidiaries that bank acquired during the recession. But the Justice Department countered that Citigroup offered a greater share of troubled mortgage-backed securities.

Investors shrugged off the settlement, a sign that they expect Citigroup will continue to operate without much disruption. Shares in Citi rose $1.67 — or 3.6 percent — to $48.67 because the bank beat the expectations in the market, after adjusting for the second-quarter $3.8 billion charge related to the Justice Department settlement.

CEO Michael Corbat said the settlement ends all pending civil investigations related to Citigroup’s handling of mortgage-backed securities.

Citigroup said its net income dropped in the second quarter after the settlement was arranged.

On a per-share basis, net income was 3 cents, compared with $1.34 in the second quarter a year earlier. Excluding the charges and an accounting loss, the bank’s second-quarter profit rose 1 percent to $3.93 billion, or $1.24 a share.

Revenue was $19.4 billion, excluding the accounting loss, compared with $20 billion a year earlier.

The two sides had earlier been far apart in their negotiations. The Justice Department was preparing to sue the bank last month after it offered to pay under $4 billion to resolve the matter, a sum substantially less than what the government was seeking.

 

The Associated Press

The Associated Press

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

Waiting game: Woman, toddler hope for kidney transplants

By Amy Maginnis-Honey | From Page: C1 | Gallery

 
Tiny twins call Heather House their 1st home

By Amy Maginnis-Honey | From Page: A1, 2 Comments | Gallery

Solano ranks last in Bay Area for health

By Ryan McCarthy | From Page: A1 | Gallery

 
SID to consider water rate hikes

By Kevin W. Green | From Page: A1

California water saving mandate shrinks cuts for some cities

By Staff and wire reports | From Page: A1

 
Who is the Bay Area’s most popular athlete?

By Brad Stanhope | From Page: A2

 
City announces Browns Valley Road closures

By Bill Hicks | From Page: A3

Healthier Living program begins mid-May

By Kevin W. Green | From Page: A3

 
Bachelor party turns into community event

By Susan Hiland | From Page: A3 | Gallery

Il Fiorello serves up chocolate desserts

By Susan Hiland | From Page: A3 | Gallery

 
When to throw in the towel on sickly plants

By Karen Metz | From Page: C4

Coping with seasonal allergies

By Emerita Brigino-Buenaventura, M.d | From Page: C4

 
Solano superhero back in school

By Kevin W. Green | From Page: A5

Church hosts health, wellness fair

By Susan Hiland | From Page: A5 | Gallery

 
Home, garden show offers something for everyone

By Bill Hicks | From Page: A6 | Gallery

Weather for Sunday, April 19, 2015

By Daily Republic staff | From Page: B6

 
2 nations at center of market drop

By Bud Stevenson | From Page: B7

Vanden robotics team ready to compete in world championships

By Bill Hicks | From Page: A7 | Gallery

 
Fairfield hotel gets major renovation

By Kevin W. Green | From Page: B7 | Gallery

 
Teen victim of Dixon shooting dies

By Bill Hicks | From Page: A7

Land use, design, project synergy key to growth

By Brian Miller and Karl Dumas | From Page: B7

 
Fairfield police log: April 17, 2015

By Glen Faison | From Page: A9

Suisun City police log: April 17, 2015

By Glen Faison | From Page: A9

 
Commissary-Exchange pairing gains steam

By Nick DeCicco | From Page: B10

Airmen with county ties complete training

By Nick DeCicco | From Page: B10

 
.

US / World

San Francisco marks anniversary of 1906 earthquake

By The Associated Press | From Page: A7

 
Time plus distance help some Oklahoma City victims move on

By The Associated Press | From Page: A7

Police: Officers kill man who charged at them near St. Louis

By The Associated Press | From Page: A10

 
Scarlett O’Hara outfit fetches $137,000 at auction

By The Associated Press | From Page: A10

Turin Shroud goes back on display for faithful and curious

By The Associated Press | From Page: A10

 
Caged puppies on car roof trigger dozens of 911 calls

By The Associated Press | From Page: A10

French replica of revolutionary frigate sets sail for Boston

By The Associated Press | From Page: A11

 
Islamic State blamed for Afghan suicide bombing killing 35

By The Associated Press | From Page: A12

.

Opinion

Transportation projects should benefit all drivers

By Brian Thiemer | From Page: A8

 
Justice not served

By Letter to the Editor | From Page: A8

Clinton should spruce up a bit

By Letter to the Editor | From Page: A8

 
Brown support of ag water ruffles feathers

By Dan Walters | From Page: A8

 
Sound off for April 19, 2015

By Daily Republic | From Page: A8

Talk about corruption

By Letter to the Editor | From Page: A8

 
.

Living

Community Calendar: April 19, 2015

By Susan Hiland | From Page: A2

 
Today in history: Sunday, April 19, 2015

By The Associated Press | From Page: A2

Is it possible for Methodists to agree to disagree on gay marriage?

By The Washington Post | From Page: C3 | Gallery

 
Vatican unexpectedly ends crackdown of US nun group

By The Associated Press | From Page: C3

Horoscopes: April 19, 2015

By Holiday Mathis | From Page: C4

 
Wife needs to decide if she can tolerate husband’s binge drinking

By Kathy Mitchell and Marcy Sugar | From Page: C4

.

Entertainment

PUBLISHERS WEEKLY BEST-SELLERS

By The Associated Press | From Page: C2

 
Anna Kendrick has book of essays coming out in 2016

By The Associated Press | From Page: C2

Phil Klay, Leslie Jamison among PEN award nominees

By The Associated Press | From Page: C2

 
.

Sports

Crawford, Heston lead Giants to win

By The Associated Press | From Page: B1

 
Curry scores 34, Warriors beat Pelicans 106-99 in Game 1

By The Associated Press | From Page: B1 | Gallery

Reddick’s 3-run homer sends A’s to 5-0 victory over Royals

By The Associated Press | From Page: B1

 
Cal defense shines for a change at scripted spring game

By The Associated Press | From Page: B1

 
Serena Williams gets a rare test from Giorgi but holds on

By The Associated Press | From Page: B2

Tom Watson: Next Masters might be his last

By The Associated Press | From Page: B2

 
Free agent center Wisniewski signs 1-year deal with Jaguars

By The Associated Press | From Page: B2

Pete Rose hired by Fox as special guest studio analyst

By The Associated Press | From Page: B2

 
Marcotte, Ryan win US cycling Criterium championships

By The Associated Press | From Page: B2

Independent league experiments with 3-ball walks

By The Associated Press | From Page: B2

 
Merritt maintains edge through 3 rounds at RBC Heritage

By The Associated Press | From Page: B2 | Gallery

Jones throws 2 TDs, wins challenge at Ohio State spring game

By The Associated Press | From Page: B2 | Gallery

 
As Spurs know, international players can impact NBA playoffs

By The Associated Press | From Page: B3 | Gallery

Rose scores 23, Bulls beat Bucks 103-91

By The Associated Press | From Page: B3

 
Harden has 24 points, Rockets beat Mavs 118-108 in Game 1

By The Associated Press | From Page: B3

Pierce leads Wizards past Raptors in OT in Game 1

By The Associated Press | From Page: B3 | Gallery

 
Hometown report: Little League baseball

By Daily Republic staff | From Page: B4

Hometown report: Youth track

By Daily Republic staff | From Page: B4

 
Kenseth content in car and not contemplating retirement

By The Associated Press | From Page: B4 | Gallery

Logano leads flag-to-flag to win Xfinity race at Bristol

By The Associated Press | From Page: B4 | Gallery

 
This date in sports history for April 19

By The Associated Press | From Page: B5

 
.

Business

Using a prepaid card? Avoid getting socked with fees

By The Washington Post | From Page: B7

 
Recalls this week: blowers, bike hooks, mattresses, toys

By The Associated Press | From Page: B8

This year’s fight for the tech industry: Patent trolls

By The Associated Press | From Page: B8

 
IMS: US prescription drug spending jumped 13 percent in 2014

By The Associated Press | From Page: B9

Fast-growing Asian aviation confronts safety challenges

By The Associated Press | From Page: B9 | Gallery

 
USDA veterinarian: Bird flu outbreak could be ‘devastating’

By The Associated Press | From Page: B12

 
.

Obituaries

Carole Anspach

By Nancy Green | From Page: A4

 
Frances Bayona Lozano

By Nancy Green | From Page: A4

Robert Larkin

By Nancy Green | From Page: A4

 
Barbara Medders

By Nancy Green | From Page: A4

Carrol “Carl” Gordon Parker

By Nancy Green | From Page: A4

 
John Thompson

By Nancy Green | From Page: A4

Allen Ellsworth Dolby Sr.

By Nancy Green | From Page: A4

 
Sterling Jenkins

By Nancy Green | From Page: A5

Dennis Burkhart von Ting

By Nancy Green | From Page: A5

 
.

Comics