California will receive $200 million of the federal $7 billion settlement with Citigroup, Inc., which admitted misleading consumers and investors in the mortgage market and helped precipitate the housing crisis.
“The bank’s misconduct was egregious,’’ Attorney General Eric H. Holder Jr. said in a statement Monday announcing the agreement. Around $102.7 million of California’s money will go to the state’s giant pension funds, California Public Employees' Retirement System (CalPERS) and California State Teachers' Retirement System (CalSTRS), that got hammered by the worldwide economic collapse.
Around 7.1% of the total national settlement will be divided between state attorneys general, including California’s, and the Federal Deposit Insurance Corporation (FDIC).
In California, $90 million will be available to the thousands of people directly smacked by the mortgage meltdown. They will receive loan modifications and refinancing. But they will share that money with those receiving down-payment and closing-cost assistance, and organizations who are involved in redevelopment and affordable rental housing for low-income families.
The $90 million is $12 million more than Silicon Valley’s Larry Ellison, CEO at Oracle, earned in 2013, and five times what Citi CEO Michael Corbat made, but 31% less than the $131.2 million California-based McKesson CEO John Hammergren pocketed. Citi earned $17.6 million The $7 billion is two and a half times what billionaire Steve Ballmer has offered for the Los Angeles Clippers basketball team.
Citi originally offered to pay just $363 million in April but thought better of the strategy when faced with evidence that the bank's “widespread defects among the increasingly risky loans they were securitizing” might not play well in a public criminal trial. A civil action behind closed doors worked much better for both sides.
The settlement ends all civil actions pending against Citi over its handling of residential mortgage-backed securities and collateralized debt obligations (CDOs). Holder said it doesn’t end possible civil and criminal actions against individuals in the future, but bankers involved in the housing crisis have, by and large, escaped prosecution.
The settlement shielded Citi's board from responsibility and left shareholders to bear the financial penalty, which the market deemed a non-event. Citicorp's stock price rose 3.2% on Monday after the settlement and its quarterly earnings report were announced. Citi was given credit for buoying the market when its revenues beat market expectations.
Citi is essentially paying the penalties, such as they are, out of the increased profits and market share.
“Citigroup is the first major commercial bank to report, and with today's earnings, the trend seems to be pointing that financials will have a good earnings season,” Peter Cardillo, chief market economist at Rockwell Global Capital in New York, told Reuters.
California picked up $300 million last November from JPMorgan Chase & Co. for similar transgressions out of a total $13 billion national settlement. Next up is Bank of America.
–Ken Broder
To Learn More:
California Pension Funds, Consumers Get Nearly $200M in Citi Settlement (by Mark Anderson, Sacramento Business Journal)
Citigroup and U.S. Reach $7 Billion Mortgage Settlement (by Michael Corkery, New York Times)
Wall St. Closes Higher on Citi Earnings, Healthcare M&A (by Angela Moon, Reuters)
Citigroup Profit Tumbles after $7 Billion Mortgage Settlement with DOJ (by Maggie McGrath, Forbes)
Record $7 Billion Global Settlement with Citigroup for Misleading Investors about Securities Containing Toxic Mortgages (U.S. Department of Justice)
Bank of America Smacked with Foreclosure Fraud Lawsuits (by Matt Bewig, AllGov)