Eric Holder Jr., left, and Brad Karp, right. (Photos: ALM)
The U.S. Department of Justice on Monday continued to squeeze the country’s biggest banks for their roles in the financial crisis, securing a $7 billion global settlement with Citigroup Inc. over misrepresentations about residential mortgage-backed securities.
Citigroup will pay a $4 billion civil penalty, an amount the Justice Department said was the largest ever under the Financial Institutions Reform, Recovery and Enforcement Act.
The bank acknowledged duping the public, including investors, about the quality of its residential mortgage-backed securities. “It’s amazing that some of these loans were closed at all,” a Citigroup trader wrote in an email that the Justice Department highlighted in announcing the deal with the bank. The trader said “we should start praying.”
Citigroup also agreed to pay $2.5 billion in consumer relief, a provision that Attorney General Eric Holder Jr. stressed at a press conference Monday at Main Justice. “This assistance has become a must-have element in our agreements with banks that contributed to the mortgage crisis,” Holder said. “It will remain so.”
Holder said the Justice Department was close to filing a civil complaint against Citigroup and that it was not inevitable in the past few weeks that it would be resolved outside of court. He added that “we believe the size and scope of this resolution goes beyond what could be considered the mere cost of doing business.
“This historic penalty is appropriate given the strength of the evidence of the wrongdoing committed by Citi,” Holder said in a written statement. “The bank’s activities contributed mightily to the financial crisis that devastated our economy in 2008.”
Holder also said that there are more cases to come. “Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last,” he said.
The settlement, the attorney general said, “does not in any way absolve Citigroup or its individual employees from facing any possible criminal charges in the future.”
Citigroup’s lawyers included Brad Karp, chairman of Paul, Weiss, Rifkind, Wharton & Garrison, and Paul Weiss partner Theodore Wells Jr., co-chairman of the firm’s litigation department.
In a statement, Michael Corbat, chief executive officer of Citigroup, said the settlement “is in the best interests of our shareholders, and allows us to move forward and to focus on the future, not the past.”