Friday, August 1, 2014
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

Trifecta: ‘The Who’s Tommy’ third play in three months

By Amy Maginnis-Honey | From Page: B1 | Gallery

 
Gemstones shine at Solano County Fair

By Barry Eberling | From Page: A1 | Gallery

 
Japan Summerfest returns this month

By Susan Hiland | From Page: A3

 
Vallejo police arrest suspect in shooting death

By Barry Eberling | From Page: A4 | Gallery

Fairfield man settles suit against Raley’s

By Ryan McCarthy | From Page: A4

 
Solano Tea Party Patriots schedule meet

By Susan Hiland | From Page: A4

Details limited after shooting leaves 1 with injuries

By Amy Maginnis-Honey | From Page: A4

 
Highway 12 to close overnight in Jameson Canyon

By Barry Eberling | From Page: A4

Air district calls Spare the Air alert

By Barry Eberling | From Page: A4

 
Stabbing victim dies in Vacaville

By Barry Eberling | From Page: A5

Fairfield police log: July 30, 2014

By Susan Hiland | From Page: A12

 
Suisun City police log: July 30, 2014

By Susan Hiland | From Page: A12

.

US / World

A look at the impact of Wisconsin’s union law

By The Associated Press | From Page: A1

 
Union: California prison staff told to fake checks

By The Associated Press | From Page: A1 | Gallery

Abbas seeks broad support for war crimes charges

By The Associated Press | From Page: A1

 
US, UN announce deal on 72-hour Gaza cease-fire

By The Associated Press | From Page: A1 | Gallery

As US job market strengthens, many don’t feel it

By The Associated Press | From Page: A1

 
Dow plunges as multiple worries vex investors

By The Associated Press | From Page: A1 | Gallery

Wisconsin Supreme Court upholds 2011 union law

By The Associated Press | From Page: A1

 
Report: Secrecy enveloped Bay Bridge construction

By The Associated Press | From Page: A5

Yosemite wildfire weakened, evacuations to end

By The Associated Press | From Page: A5

 
Candidate goes homeless to show economic gap

By The Associated Press | From Page: A5 | Gallery

California ex-mayor sentenced in corruption case

By The Associated Press | From Page: A5

 
Californians to see increase in health plan costs

By The Associated Press | From Page: A5

Appellate court overturns high-speed rail rulings

By The Associated Press | From Page: A5

 
US warns against traveling to Ebola-hit countries

By The Associated Press | From Page: A6

Demoted worker shoots CEO, kills self in Chicago

By The Associated Press | From Page: A7

 
NASA to test making rocket fuel ingredient on Mars

By The Associated Press | From Page: A7

Investigators reach Ukraine jet wreckage site

By The Associated Press | From Page: A7 | Gallery

 
Congress races to finish VA, highway bills

By The Associated Press | From Page: A7

See-through mice reveal details of inner anatomy

By The Associated Press | From Page: A7

 
CIA spied on Senate, internal review finds

By The Associated Press | From Page: A7

.

Opinion

Why do so many Americans support Hamas

By Letter to the Editor | From Page: A11

 
Nice guy becomes House majority leader

By Dan Walters | From Page: A11

 
Should union organizing be a civil right?

By Ben Boychuk and Joel Mathis | From Page: A11

.

Living

Community Calendar: Aug. 1, 2014

By Susan Hiland | From Page: A2

 
.

Entertainment

 
Review: Boseman drips with charisma as James Brown

By The Associated Press | From Page: B2

.

Sports

Safety Bethea finding a groove with new 49ers team

By The Associated Press | From Page: B7 | Gallery

 
A’s deal Tommy Milone to Twins for Sam Fuld

By The Associated Press | From Page: B7

A’s get Lester, Gomes from Red Sox for Cespedes

By The Associated Press | From Page: B7 | Gallery

 
Chekwa taking reps with Raiders while Hayden sits

By The Associated Press | From Page: B7 | Gallery

Expos fall short in 10-9 loss to Leghorns

By Paul Farmer | From Page: B7

 
Phelps to compete in 4 events at US nationals

By The Associated Press | From Page: B8

Another decent start for Woods at Firestone

By The Associated Press | From Page: B8 | Gallery

 
Ravens’ Rice: His actions ‘totally inexcusable’

By The Associated Press | From Page: B8

Dustin Johnson takes leave of absence from golf

By The Associated Press | From Page: B8

 
Commonwealth Games athlete convicted for assault on rival

By The Associated Press | From Page: B8

Lynch ends holdout, arrives at Seahawks camp

By The Associated Press | From Page: B8

 
Nick Watney leads PGA Barracuda Championship

By The Associated Press | From Page: B8

Rich get richer: Rays’ Price traded to Tigers

By The Associated Press | From Page: B8 | Gallery

 
Dumdumaya takes third in World Junior/Junior Olympic tourney

By Daily Republic staff | From Page: B8

AP Source: Trump advances in Bills sale process

By The Associated Press | From Page: B8

 
Mudcats get 15-7 win in Auburn Classic

By Daily Republic staff | From Page: B8

Signups for Friday, Aug. 1, 2014

By Paul Farmer | From Page: B9

 
Derrick Brooks set standard for NFL linebackers

By The Associated Press | From Page: B9 | Gallery

.

Business

Daimler launches new version of tiny Smart car

By The Associated Press | From Page: C1

 
SeaWorld, Southwest Airlines ending partnership

By The Associated Press | From Page: B11

Target taps outsider as CEO for needed shakeup

By The Associated Press | From Page: B11

 
Iliad of France makes surprise bid for T-Mobile US

By The Associated Press | From Page: B11

Facebook’s Internet.org expands in Zambia

By The Associated Press | From Page: B11

 
In San Francisco real estate, $1M won’t buy much

By The Associated Press | From Page: B11

Debit overdraft fees often exceed cost of purchase

By The Associated Press | From Page: B11

 
Panasonic, Tesla to build big US battery plant

By The Associated Press | From Page: B11

.

Obituaries

Clifford C. Hemler

By Nancy Green | From Page: A4, 1 Comment

 
.

Comics

Pickles

By Daily Republic Syndicated Content | From Page: A8

 
Zits

By Daily Republic Syndicated Content | From Page: A8

Dilbert

By Daily Republic Syndicated Content | From Page: A8

 
Sally Forth

By Daily Republic Syndicated Content | From Page: A8

Garfield

By Daily Republic Syndicated Content | From Page: A8

 
Frank and Ernest

By Daily Republic Syndicated Content | From Page: A8

Blondie

By Daily Republic Syndicated Content | From Page: A8

 
Baby Blues

By Daily Republic Syndicated Content | From Page: A8

Beetle Bailey

By Daily Republic Syndicated Content | From Page: A8

 
For Better or Worse

By Daily Republic Syndicated Content | From Page: A8

Wizard of Id

By Daily Republic Syndicated Content | From Page: A8

 
Peanuts

By Daily Republic Syndicated Content | From Page: A8

Bridge

By Daily Republic Syndicated Content | From Page: A9

 
Word Sleuth

By Daily Republic Syndicated Content | From Page: A9

Cryptoquote

By Daily Republic Syndicated Content | From Page: A9

 
Crossword

By Daily Republic Syndicated Content | From Page: A9

Sudoku

By Daily Republic Syndicated Content | From Page: A9