WASHINGTON: Citigroup agreed Monday to pay $7 billion to settle a federal investigation into its handling of risky subprime mortgages, admitting to a pattern of deception that Attorney General Eric Holder said “shattered lives” and contributed to the worst financial crisis in decades.
The settlement represents a moment of reckoning for one of the country’s biggest and most significant banks, which will now be responsible for providing financial support to Americans whose lives were dismantled by the largest economic meltdown since the Great Depression.
Besides a $4 billion civil penalty, the bank will also pay $2.5 billion in consumer relief to help borrowers who lost their homes to foreclosure and settle claims from state attorneys general and the Federal Deposit Insurance Corporation. The settlement does not preclude the possibility of criminal prosecutions for the bank or individual employees in the future, the Justice Department said.
The $7 billion settlement, which represents about half of Citigroup’s $13.7 billion profit last year, is the latest substantial penalty sought for a bank or mortgage company at the epicenter of the housing crisis. The Justice Department, criticized for not being aggressive enough in targeting financial misconduct, has in the last year reached a $13 billion deal with JPMorgan Chase & Co., the nation’s largest bank, and also sued Bank of America Corp. for misleading investors in its sale of mortgage-linked securities.
Yet the settlement packages pale in size compared with the broader damages caused by the Great Recession. The unemployment rate spiked to 10 percent as millions lost their jobs and their homes, causing losses that totaled in the trillions of dollars. And consumers groups criticized the settlement as a sweetheart deal for a major bank.
The settlement stems from the sale of toxic securities made up of subprime mortgages, which led to both the housing boom and bust that triggered the Great Recession at the end of 2007.