New York, NY, United States (4E) – Citigroup, the third-biggest U.S. bank, has agreed to pay $7 billion in settlement to the government for selling bad mortgage loans to investors ahead of the 2007-2008 financial crisis.
The settlement includes $4 billion in penalties and $2.5 billion in mortgage modifications and other relief to homeowners, according to a statement the Department of Justice (DOJ) made on Monday. About $500 million of the settlement will go to five states and the Federal Deposit Insurance Corp.
“Under the terms of this settlement, the bank has admitted to its misdeeds in great detail. The bank’s activities shattered lives and livelihoods throughout the country,” Attorney General Eric Holder said. “They contributed mightily to the financial crisis that devastated our economy in 2008.”
“We believe that this settlement is in the best interests of our shareholders, and allows us to move forward and to focus on the future, not the past,” said Citi CEO Michael Corbat, according to CNN.
The $4 billion civil penalty that will go to the Treasury Department is the largest civil fine of its kind and will not be tax deductible, according to Assistant Attorney General West.
The settlement’s relief to hundreds of thousands of homeowners is in the form of reduced loan amount or interest rate to be provided until 2018. Down payment and closing cost assistance to future homebuyers will also be provided.
Citigroup initially offered to settle at $363 million while the DOJ demanded $12 billion. When the DOJ threatened to file a civil suit against the bank, Citigroup agreed to the larger settlement amount.
Despite the settlement, Citigroup shares rose 3.5 percent on Monday’s trading in the Standard & Poor’s 500 Financials Index because its second quarter earnings announced on Monday beat forecast. The earnings report included $3.7 billion charge to cover the cost of the settlement.