Citigroup has reached a $7 billion settlement with the Justice Department for packaging and selling bad mortgages in the run-up to the financial crisis of 2008.
There was speculation last week that Citigroup had reached an agreement with the Justice Department, which was confirmed Monday. The penalty includes $4 billion to be paid to the Justice Department, which U.S. Attorney General Eric Holder called the largest penalty of its kind and appropriate given Citi's wrongdoings.
"Despite the fact that Citigroup learned of serious and widespread defects among the increasingly risky loans they were scrutinizing, the bank and its employees concealed these defects,'' Holder said in a statement Monday.
"The bank's conduct was egregious. And under terms of this settlement, the bank has admitted to its misdeeds in great detail,'' he added.
Citi will pay $500 million to state attorneys general and the Federal Deposit Insurance Corp. The remaining $2.5 billion will be used to help customers struggling with mortgage and other problems.
"We also have now resolved substantially all of our legacy RMBS and CDO litigation," Citigroup Chief Executive Officer Michael Corbat said in a statement. "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."
Many analysts on Wall Street were surprised at the size of the penalty with many expecting it to be $3 billion to $4 billion. But after talks broke down last month, the government was seeking around $10 billion, finally settling for $7 billion.
Citigroup becomes the second big bank to pay a penalty to the U.S. government for selling bad mortgages with J.P. Morgan Chase settling with the government last year for $13 billion.