Citigroup (C) has reportedly agreed to pay $7 billion to settle a U.S. government probe into worthless mortgage-backed securities the New York-based bank sold in the run-up to the 2008 crash.
The $7 billion settlement consists of $4 billion in cash to the U.S. Justice Department, $2.5 billion in consumer relief, more than $200 million to the FDIC and just under $300 million to settle investigations by five states, the Reuters news agency reported, citing sources familiar with the negotiations.
The Wall Street Journal reported that Citigroup initially offered to pay $363 million in cash to settle Justice Department claims this past May before upping their proposal to $700 million. The DOJ countered by demanding a number that was roughly $12 billion. The paper reported that the government became so frustrated with the negotiations that it planned to file a lawsuit against Citigroup June 18.
The settlement, which marks a significant turnaround in terms of how far apart the two parties were only a few weeks ago, is expected to be announced by AG Eric Holder Monday morning when Citigroup executives also will report Q2 earnings results before the stock market opens in New York.
Citigroup is the second major bank to settle with the DOJ and state AGs over the quality of home mortgages backing bonds sold to investors before and during the financial crisis.
JPMorgan Chase (JPM), the largest U.S. bank, agreed to pay $13 billion to settle charges over similar issues last November, and Bank of America (BAC) is reportedly in talks to pay as much as $17 billion to settle a similar case brought by the DOJ.
Citi shares closed at $47.00 on the New York Stock Exchange on Friday. They’re now up 40 cents in pre-market trading.