Citigroup (NYSE: C) has agreed to pay $1.13 billion to settle claims with investors. The bank was under pressure from 18 institutional investors, who adamantly pushed the lender to repurchase or compensate for vast amounts of residential mortgage-backed securities bought in the period from 2005 to 2008. The investment bank announced the offer early Monday, and is now awaiting approval from the trustees of 68 Citi-backed trusts that bought nearly $60 billion in bundled securities.
This deal will release Citigroup from the responsibility of having to buy back the mortgages sold to the trusts. Notably, the agreement does not cover home loans issued and sold through private-label securitization trusts. It would also result in a $100 million charge to Citigroup’s first quarter.
Leaving the Past Behind?
On Monday, when the deal was announced, Citigroup’s shares were down 1.19 percent by the end of the day. Yet the company remains publicly optimistic about the recent turn of events. The bank has issued a statement that “this settlement resolves a significant legacy issue from the financial crisis, and we are pleased to put it behind us.”
Indeed, regulatory abuses and lack of transparency was a widespread issue among big banks such as Citigroup, Goldman Sachs (NYSE: GS) and JP Morgan (NYSE: JPM) throughout the mortgage-backed securities craze that culminated in the 2008 financial crisis and subsequent recession in the United States. The sale of toxic securities has led to billion-dollar settlements at many banks, not to mention civil charges leveled by the Securities and Exchange Commission, to address charges of misleading investors with risky mortgage assets.