to sue Citigroup over faulty mortgage bonds: sources
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[June 14, 2014]
(Reuters) - The U.S. Department of Justice is preparing
to sue Citigroup Inc <C.N> on charges that the bank
defrauded investors on billions of dollars worth of
mortgage securities in the run-up to the financial
crisis, after talks to resolve the probe broke down,
people familiar with the matter said on Friday.
A lawsuit could be filed in U.S. District Court in Brooklyn as early
as next week, the people said, as the bank and civil prosecutors
stood far apart in reaching an agreement on the size of any deal.
The settlement negotiations had involved penalty numbers of $10
billion or more, another person familiar with the talks said.
Bloomberg News reported earlier on Friday that the Justice
Department had asked the bank to pay more than $10 billion, and that
the bank had offered less than $4 billion.
Citigroup shares were down 1.7 percent in New York trading following
A Citigroup spokesman declined to comment. Robert Nardoza, a
spokesman for the U.S. attorney for the Eastern District of New
York, declined comment.
The developments come as the Justice Department is preparing a
similar lawsuit against Bank of America's <BAC.N> Merrill Lynch
unit, after discussions over a $12 billion to $17 billion settlement
did not produce an agreement.
The $10 billion figure for Citigroup was greeted with disbelief by
some on Wall Street because the bank had marketed fewer mortgage
securities than did some other banks.
Fred Cannon, an analyst at Keefe, Bruyette & Woods, said in a
research note that he estimates Citigroup may have to pay $6 billion
to reach a deal with the Justice Department, which could exceed the
bank's legal reserves and require it to record additional expenses
this year. Citigroupís share price likely already reflects a $3
billion addition to reserves, he said.
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While Wall Street analysts base settlement estimates on the dollar
amount of the securities banks sold, it is much harder for them to
know if prosecutors have evidence that a bank was especially
egregious in packaging poor quality loans and marketing the
instruments as safe, and arguably should have to pay more than other
banks. Prosecutors also consider the level of banks' cooperation in
investigations and other factors.
Reuters reported in December that the Justice Department was
preparing a civil fraud lawsuit against the bank that alleged
investors lost tens of billions of dollars on the securities at
U.S. attorney's offices in Brooklyn and Colorado have been
investigating the bank as part of a larger task force probing faulty
mortgage securities that helped fuel the housing bubble in the
mid-2000s and contributed to its collapse.
(Reporting by Aruna Viswanatha in Washington, D.C. and Karen
Freifeld and David Henry in New York; Editing by Leslie Adler)
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