Citigroup and the Department of Justice agree to put the bank's bad behavior on mortgage securities behind them with a $7 billion settlement. Conway G. Gittens reports.
Citigroup is paying double for its mortgage trouble. The financial institution agreeing to pay $7 billion to settle a probe with the U.S. government over shoddy mortgage securities that helped fuel the financial crisis and the great recession. The settlement was twice as high as expected, but not as much as the $12 billion being sought by the Justice Department. Who gets what is an important part of the agreement, says U.S. Attorney General Eric Holder. SOUNDBITE: U.S. ATTORNEY GENERAL ERIC HOLDER (ENGLISH) SAYING: "This total includes a civil penalty of $4 billion, the largest penalty to date of its kind. The penalty is appropriate given the strength of the evidence of the wrongdoing committed by Citi, despite the fact that Citigroup learned of serious and widespread defects among the increasingly risky loans they were securitizing, the bank and its employees concealed these defects." And another $2.5 billion will go to help out homeowners and communities hurt by the mortgage crisis. SOUNDBITE: U.S. ATTORNEY GENERAL ERIC HOLDER (ENGLISH) SAYING: "The bank's misconduct was egregious and under the terms of this settlement the bank has admitted to its misdeed in great detail. The bank's activity shattered lives and livelihood throughout the country and also around the world. They contributed mightily to the financial crisis that devastated our economy in 2008." But Antony Currie, Associate Editor of Reuters BreakingViews says the settlement does not sound the all clear on the stock. SOUNDBITE: ANTONY CURRIE, ASSOCIATE EDITOR, REUTERS BREAKINGVIEWS (ENGLISH) SAYING: "The settlement means all these home loan bonds that they were selling, they no longer get hit on those for the future. That's all done. The settlement closes that chapter for them. Secondly, Citigroup set up what they called a "bad bank" a few years ago for all the bad assets it had and that finally has - for the first time this quarter - made money. That's good news. The bad news is that even though Citi is earning $4 billion a quarter, once you strip out all these extras for legal costs and whatever, that's not enough to cover its own cost of capital." Plus, the company says legal costs outside of mortgage issues - likely to remain high for the rest of the year. And it still has to convince regulators that it's ready enough and safe enough to withstand another financial shock - after failing the Federal Reserve's stress test earlier this year.