Citigroup agreed to pay $7bn on Monday to settle a federal investigation into the toxic mortgage products the bank sold in the run-up to the financial crisis.
The agreement comes after months of tense negotiations and comes as Justice Department continues to negotiate a similar settlement with rial Bank of America.
“The bank’s misconduct was egregious,’’ attorney general Eric Holder said in a statement. “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”
Citigroup will pay $4bn in cash to the Justice Department – the largest payment of its kind – and a further $500m will go to state attorneys general and the Federal Deposit Insurance Corporation.
A payment of $2.5bn has been earmarked for struggling consumers and will be used to help struggling homeowners with principal reductions on home loans and other relief programmes as well as financing the construction and preservation of affordable rental housing.
“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,” Citigroup’s chief executive, Michael Corbat, said in a statement.
Negotiations with the bank had become increasingly tense. Citigroup had originally offered to pay $363m to settle the investigation and believed its fine should be a fraction of the $13bn JP Morgan agreed to pay to settle its issues last year.
Holder said that the settlement did not absolve “Citigroup or its individual employees” from future criminal charges.
“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, ’’ Holder said.
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