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54 CITIGROUP ANNOUNCES EFFECT OF SETTLEMENT ON Q2 EARNINGS Citigroup's second-quarter profits took a ma- jor hit as the bank announced a settlement with the government to resolve securities claims. Citi released its quarterly earnings report in mid-July, posting net profit of $181 million—a decline of 96 percent compared to earnings of $4.2 billion a year ago. e second quarter's results include a $3.8 billion charge related to a $7 billion settlement with the Residential Mortgage-Backed Securi- ties (RMBS) Working Group, also announced that same week. e announcement comes on the heels of reports the prior week that Citigroup was poised to settle all RMBS related claims with the Department of Justice (DOJ), several state attorneys general, and the Federal Deposit Insurance Corporation (FDIC). Under the terms of the agreement, the bank will pay a total of $4.5 billion in cash, including a $4 billion payment to the Justice Department and $500 million in payments to state attorney generals and FDIC. e remaining $2.5 billion will be provided through consumer relief by the end of 2018. "is historic penalty is appropriate given the strength of the evidence of the wrongdo- ing committed by Citi," said attorney general Eric Holder. "e bank's activities contributed mightily to the financial crisis that devastated our economy in 2008. Taken together, we believe the size and scope of this resolution goes beyond what could be considered the mere cost of doing business. Citi is not the first financial institution to be held accountable by this Justice Depart- ment, and it will certainly not be the last." e settlement brings to bear any real claims and investigations into Citi's RMBS and col- lateralized debt obligations (CDOs) issued, structured, or underwritten between 2003 and 2008. In a statement, Citigroup CEO Michael Corbat said that with the agreement, Citi has now resolved "substantially all" of its legacy RMBS and CDO litigation. "We believe that this settlement is in the best interests of our shareholders and allows us to move forward and to focus on the future, not the past," Corbat said. Even removing the settlement charge, Citi's Q2 earnings would have come to $3.9 billion, short of last year but in line with Q1's results. e bank's North American Global Con- sumer Banking income came to $1.1 billion, "broadly flat" from last year as lower operating expenses, a decline in net credit losses, and a higher loan loss reserve helped offset lower revenues stemming from waning mortgage refinancing activity. Percentage by which housing inventory is down from its 2011 peak. Source: National Association of Realtors STAT INSIGHT 23.5%