Banking giant Citigroup Inc. is paying $7 billion to settle claims that it snookered investors on toxic mortgage-backed securities marketed during the housing bubble, with nearly $200 million of the settlement ticketed for California.
The settlement, announced Monday, includes a record $4 billion fine to be paid to the U.S. Justice Department. The overall settlement is twice what Wall Street analysts expected but considerably less than what the government had been seeking.
California’s share includes $102.7 million to be split among the state’s two big public pension funds, CalPERS and CalSTRS, according to state Attorney General Kamala Harris’ office. It wasn’t clear how the money would be divided between the two funds.
California will also receive at least $90 million in various forms of “consumer relief,” including loan modifications and donations to nonprofits that provide legal and housing assistance to borrowers.
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“Citigroup misled consumers and profited by providing California’s pension funds with incomplete information about mortgage investments,” Harris said in a press release.
Federal officials said the nationwide settlement includes a $4 billion civil penalty and an acknowledgment by Citigroup that it misled investors and others about its residential mortgage-backed securities. The Justice Department said it will continue investigating allegations that big banks duped investors into buying securities laden with poorly performing home mortgages.
“We’re not letting up, and we’re not going away,” said Tony West, the U.S. associate attorney general, in announcing the settlement in Washington. “We will continue to pursue these cases.”
The government said it has now recovered $20 billion for investors and borrowers through multi-state investigations into flawed mortgage-backed securities.
The settlement put a dent in Citigroup’s quarterly earnings, which were announced today. The New York banking giant said it earned $181 million in the second quarter, down from $4.2 billion a year ago.