Banking giant Citigroup has agreed to pay the U.S. government $7 billion after claims it mislead investors in the run-up to the global financial crisis. The case is a landmark win for the Department of Justice. CCTV’s Shraysi Tandon reports.
$7 billion: the price Citigroup has agreed to pay for selling risky and faulty mortgage-backed securities in the lead up to the worst financial crisis since the Great Depression.
The $7 billion dollar settlement includes a $4 billion civil penalty, $500 million which will go to state attorneys general and the Federal Deposit Insurance Corporation and $2.5 billion which will go toward consumers, including those struggling to pay their residential Citigroup loans.
U.S. Attorney General Eric Holder condemned Citigroup for its actions.
“The banks activities shattered lives and livelihoods through the country and also around the world,” Holder said. “They contributed mightily to the financial crisis that devastated our economy in 2008.”
Financial experts agree that banking conglomerates like Citigroup fueled the global financial crisis.
“If you look at the actions of these lenders who were making, which really was about $2 trillion of questionable loans, that were not conforming, they were not government guaranteed, and another couple trillion that ended up on the banks’ balance sheets doing their own lending that don’t conform to Federal guidelines; all of these loans juiced home prices enormously,” said Daniel Alpert, managing director of Westwood Capital. “If that hadn’t been lending this we wouldn’t have had a bubble.””
Citigroup is the second mega bank to settle with the U-S government over mortgage loans. Last year, JPMorgan Chase agreed to pay $13 billion for similar charges. And talks of a settlement between Bank of America and the Justice Department are currently underway.
Despite many big banks settling past misdemeanors, industry observers say there are still dangers that exist at these institutions.
It’s been a tough year for America’s third largest bank. Earlier this year, Citigroup’s capital plan failed the Federal Reserve’s stress test. The bank is also currently under investigation for fraud and money laundering in its Mexican unit. It seems Citigroup and CEO Michael Corbat is not short of battles to fight.