Citigroup pays $1.13 billion to settle mortgage-backed security claims

CitigroupCitigroup, America’s third-largest bank, today announced it is paying $1.13 billion to settle to settle claims of investors seeking to make the financial giant buy back billions of dollars in mortgage-backed securities.

The agreement covers claims from 18 institutional investors represented by Gibbs and Bruns LLP and mandates Citigroup make a binding offer to trustees representing some 68 trusts sponsored by Citigroup which collectively packaged $59.4 billion of home loans into securities between 2005 and 2008.

Should this offer be approved by the trustees, court, and the Federal Housing Finance Agency, Citigroup would be off the hook for buying back mortgages sold to these trusts. Trustees have until June 30 to approve the pact. Citigroup will still have to deal with other investor claims unrelated to this settlement.

Citigroup will take a charge of $100 million this quarter.  They join their top-three banking mates in making multi-billion dollar settlements with clients represented by Gibbs and Bruns. J.P. Morgan settled last November for $4.5 billion while Bank of America was dinged in 2011 for an initial $8.5 billion plus a later $5.5 billion.

The price tag has been steep for the big banks. Bank of America has spent some $60 billion to settle claims related to faulty mortgages, including a recent $9.3 million settlement for selling faulty mortgages to Fannie Mae and Freddie Mac that was announced on March 26.  J.P. Morgan’s is more than $29 billion. Citigroup’s was not determined by press time.

The settlement was not the only bit of legal news for Citigroup today.  Private equity firm Terra Firma issuing Citigroup, saying Citigroup did not disclose all financial information related to Terra Firma’s takeover of music group EMI in 2007.

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