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| Illustration by DonkeyHotey. |
Citigroup agreed to pay $7 billion to settle charges that it packaged bad mortgages during the run-up to the financial crisis.
It includes $4 billion in penalties, $2.5 billion in mortgage modifications and other relief to homeowners, and $500 million going to five states and the Federal Deposit Insurance Corp.
The settlement means Citi will be able to avoid a civil suit by the Justice Department and mirrors similar agreements with JPMorgan Chase and other lenders in recent years.
While Citi took a $3.8 billion hit because of the deal, which essentially wiped out its earnings for the quarter, it can afford it. Last year, the bank earned $14 billion and had $35 billion of cash on its balance sheet as of June 30.
Attorney General Eric Holder said Citigroup misled investors about the quality of risky mortgages it bundled into securities during the housing boom, allowing it to increase profits and market share.
“Under the terms of this settlement, the bank has admitted to its misdeeds in great detail. The bank’s activities shattered lives and livelihoods throughout the country,” he said. “They contributed mightily to the financial crisis that devastated our economy in 2008."
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