Citigroup struck a deal with the U.S. Justice Department yesterday that will see the bank pay $7 billion to settle a federal probe into faulty mortgage securities marketed prior to the recession.
About $4 billion of the cash will go to the Justice Department, thus setting a record for penalties. Borrowers struggling with mortgages would receive roughly $2.5 billion, and the state attorneys general and the Federal Deposit Insurance Corporation would each get $500 million. U.S. authorities had asked for $10 billion last month, which led to stalled negotiations.
“The bank’s misconduct was egregious,’’ Attorney General Eric Holder said in a statement provided to the New York Times. “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”
The probe into the bank is part of a larger task force that’s investigating whether faulty mortgage securities had a role in fueling the housing boom that eventually collapsed in 2008, as previously reported. [NYT] — Mark Maurer