Citigroup in $7 Billion Settlement
Morning Agenda: Citigroup in $7 Billion Settlement
Citigroup and the Justice Department have agreed to a $7 billion deal that will settle a federal investigation into the mortgage securities the bank sold in the run-up to the financial crisis, Michael Corkery writes in DealBook. The deal, announced on Monday morning, includes a $4 billion cash penalty to the Justice Department ‒ the largest payment of its kind ‒ as well as $2.5 billion in so-called soft dollars earmarked for aiding struggling consumers and $500 million to state attorneys general and the Federal Deposit Insurance Corporation. The bank, which is scheduled to announce second-quarter earnings at 8 a.m., said the settlement would result in a pretax charge of $3.8 billion before taxes in the period.
The deal caps months of contentious talks that began with a $363 million offer by Citigroup followed by a $12 billion demand from the Justice Department, a gap that stemmed from the radically divergent methods used to calculate the cost of the settlement, DealBook’s Ben Protess, Jessica Silver-Greenberg and Michael Corkery write. Citigroup linked its initial offer to the bank’s relatively small share of the market for mortgage securities. But the Justice Department rejected that argument, emphasizing instead what it saw as Citigroup’s level of culpability based on incriminating emails and other evidence it had uncovered.
The Justice Department was prepared in June to announce a lawsuit against Citigroup as negotiations with the bank stalled. But the capture of a suspect in the deadly attack in Benghazi, Libya, led federal prosecutors to postpone the announcement, opening the door to further negotiations. The main breakthrough toward a settlement took a simple feat of accounting: The bank agreed to shift a portion of the settlement from state attorneys general to the Justice Department, preventing Citigroup from claiming a tax deduction on the settlement.
http://dealbook.nytimes.com/2014/07/14/morning-agenda-citigroup-in-7-billion-settlement/