Citi concedes to $730m subprime settlement for mis-selling bonds

19 March 2013

Citigroup has agreed a US$730m payment to settle claims that the group misled investors in its bond and preferred stock offerings over its exposure to subprime mortgages.

The agreement, with plaintiffs such as the Arkansas Teacher Retirement Systems and Louisiana Sheriffs’ Pension and Relief Fund, represents the second-largest class action settlement arising from the 2008 financial crisis. Citi said that it denied the allegations and had agreed to enter the settlement “solely to eliminate the uncertainties, burden and expense of further protracted litigation”.

“This settlement is another significant step toward resolving our exposure to claims arising from the financial crisis, and we look forward to putting this matter behind us,” a statement by the group read. “Citi is a fundamentally different company today than at the beginning of the financial crisis.”

Investors had alleged that Citi had misled them about its potential exposure to securities backed by home loans, understated its loss reserves and had elevated the credit quality of some assets. The agreement covers a total of 48 preferred stock and bond deals over the period May 2006 to November 2008.

The settlement follows an earlier payment of US$590m by the bank in 2012 to settle a shareholder suit alleging that Citi failed to disclose its exposure to toxic US mortgage products in the period before the financial crisis broke.

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