Citigroup Confirms $7bn Settlement Penalty

Citigroup has confirmed it is to pay $7bn (£4.1bn) to settle a US Justice Department investigation into subprime mortgages.

The agreement was announced following weeks of talks between officials and the New York-based investment bank over the size of the penalty for selling mortgage-backed securities made up from subprime mortgages - loans blamed for triggering the financial crisis.

As part of the deal, Citigroup will make a $4bn civil monetary payment to the Justice Department and another $500m in compensatory payments to state attorney's general and the Federal Deposit Insurance Corporation (FPDIC).

The bank will also provide $2.5bn for consumer relief, which will include financing for construction and preservation of affordable housing, as well as principal reduction and forbearance for residential loans.

Bank chief executive Michael Corbat said: "The comprehensive settlement announced today with the US Department of Justice, state attorneys general, and the FDIC resolves all pending civil investigations related to our legacy RMBS (residential mortgage-backed securities) and CDO (collateralized debt obligations) underwriting, structuring and issuance activities.

"We also have now resolved substantially all of our legacy RMBS and CDO litigation", he said.

The settlement is the latest in a series of deals between banks and regulators to avert costly trials in the United States.

Citi and other banks were found to have downplayed the risks of subprime mortgages when selling them to mutual funds, investment trusts, pensions and others.

The securities, which contained so-called residential mortgage-backed securities and collateralised debt obligations, plunged in value when the housing market collapsed in 2006 and 2007.

The Citigroup settlement comes months after a similar - but much larger - $13bn deal between the Justice Department and JPMorgan Chase & Co.

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