Citigroup to Pay $730m to Settle Claims of Wrongdoing
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Citigroup has agreed to pay $730 million to settle claims that it misled bondholders of its exposure to subprime mortgages and other high-risk securities during the financial crisis. Citi has denied any wrongdoing but said it agreed to the settlement to “eliminate uncertainties”.
Citigroup has agreed to pay $730 million to settle claims that it misled bondholders of its exposure to subprime mortgages and other high-risk securities during the financial crisis. Citi has denied any wrongdoing but said it agreed to the settlement to “eliminate uncertainties”.
In the case settled on Monday, purchasers of the bank’s debt and preferred stock between 2006 and 2008 alleged that the bank misled investors about Citigroup’s possible exposure to losses on securities backed by home loans, understated with loss reserves and said some assets were of higher credit quality than they actually were.
Citi, however, denied the claims and said it was entering the settlement to end the litigation. It said the settlement would be covered by existing litigation reserves.
“Citigroup denies the allegations and is entering into this settlement solely to eliminate the uncertainties, burden and expense of further protracted litigation,” the bank said in a statement.
“This settlement is another significant step toward resolving our exposure to claims arising from the financial crisis, and we look forward to putting this matter behind us. Citi is a fundamentally different company today than at the beginning of the financial crisis,” the bank added.
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In August 2012, Citi struck a separate $590 million settlement with shareholders who claimed that the company had deliberately hid its exposure to collateralised debt obligations market to prop up its share price.
Citigroup’s shares are up 17 percent this year, though they remain 90 percent below its pre-crisis peak.
In its annual filing with the Securities and Exchange Commission, the bank said legal and related costs totalled $2.8 billion last year, up almost 30 percent from 2011.
“It’s frustrating that there seems to be no end to this litigation,” said Michael Yoshikami, the chief executive and founder of YCMNet Advisors, a California-based fund that manages $1 billion and owns Citigroup shares. “On the positive side, I think we’re starting to see the light at the end of the tunnel, which is one reason why these stocks have been trading better.”
The settlement, which is subject to court approval, is the second largest paid to investors tied to litigation stemming from the financial crisis, after the Bank of America settlement last September. In 2011, Bank of America agreed to pay $8.5 billion in cash to settle claims from investors that lost money on mortgage-backed securities.
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