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Citigroup close to $7 bln settlement for U.S. mortgage probe - REPORT

Published: 15:51 09 Jul 2014 EDT

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Citigroup Inc. (NYSE:C) fluctuated between gains and losses after media reports said the third-largest U.S. bank by assets is close to paying about $7 billion to resolve a U.S. probe into whether it defrauded investors on billions of dollars worth of mortgage securities in the run-up to the financial crisis.

Shares were flat at $47.42 at 3:42 p.m. in New York.

A majority of the settlement is expected to be in cash, but the figure also includes several billion dollars in help to struggling borrowers, a source familiar with the matter told Reuters yesterday.

An announcement of the settlement between the bank and the U.S. Department of Justice could come as early as next week, the source said.

A settlement of around $7 billion for Citigroup would be higher than analysts had expected based on the bank's mortgage securities business.

Citigroup is among banks facing investigations into whether they misled investors about the quality of bonds backed by mortgages as housing prices plummeted. Prosecutors have sought multibillion-dollar penalties from banks this year for wrongdoing including U.S. sanctions violations and helping clients avoid taxes.

Talks between U.S. authorities and Citigroup stalled last month after both sides stood far apart on a settlement figure and the Justice Department had prepared to sue the bank.

Citigroup had been offering about $4 billion, while the government was seeking close to $10 billion, a figure the bank found objectionable, the Wall Street Journal reported, citing people familiar with the matter. The bank had argued that its pre-crisis conduct shouldn't warrant such a large sum and that it should pay far less than the $13 billion paid in November by J.P. Morgan Chase (NYSE:JPM), which packaged and sold far more mortgage securities before the financial crisis, the people said.

Citigroup executives worried going to court against the government would be a long, expensive process and a public-relations nightmare even if the bank ultimately won, WSJ reported.

The bank also is trying to stay in the good graces of the Federal Reserve, which this year rejected the bank's "stress test" request to raise its dividend and expand its share buyback. The Fed isn't involved in the settlement talks.

The bank is scheduled to report second-quarter results on Monday. Analysts, on average, have estimated the company would earn $3.4 billion. Today, analysts at Morgan Stanley cut their second quarter earnings estimates for the bank to 40 cents from $1.10, given the pending settlement.

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