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Citigroup climbs on $7 bln mortgage settlement, better-than-expected Q2 profit

Published: 08:56 14 Jul 2014 EDT

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Citigroup Inc. (NYSE:C), the third-largest U.S. bank by assets, climbed in pre-market trading after saying it would pay $7 billion to settle claims regarding sales of mortgages before the financial crisis, and beating consensus forecasts for second-quarter earnings. 

Shares advanced 4.1 percent to $48.91 at 8:51 a.m. in New York. The stock had lost approximately 10 percent since the beginning of the year before today.

The New York-based firm said in a statement today that it will take a $3.8 billion pretax charge in the second quarter as it settled a mortgage probe with the Justice Department.

The bank said it agreed to pay $7 billion in fines and consumer relief to resolve government claims that it misled investors about the quality of mortgage-backed bonds sold before the 2008 financial crisis.

The accord covers securities issued, structured and underwritten between 2003 and 2008, according to Citigroup. The settlement includes a $4 billion civil penalty, the largest of its kind, according to the Justice Department. It also includes $500 million to state attorneys general and the Federal Deposit Insurance Corp. The rest will be various forms of consumer relief to be provided by the end of 2018, according to Citigroup’s statement.

"We also have now resolved substantially all of our legacy RMBS and CDO litigation,” Citigroup Chief Executive Officer Michael Corbat said in the statement. “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.”

Citigroup and government officials have been discussing a resolution since April, a person familiar with the matter told Bloomberg last month. Discussions temporarily broke down in mid-June after the bank’s settlement offers failed to satisfy prosecutors, the person said. Government officials had demanded more than $10 billion to resolve the issue, while Citigroup raised its offer to less than $4 billion, another person said.

For second-quarter results, the bank said profit tumbled 96 percent on costs tied to the mortgage-bond settlement with U.S. authorities.

Net income fell to $181 million, or 3 cents per share, from $4.18 billion, or $1.34, a year earlier.  Excluding special items, profit was $1.24 per share. The average estimate of 25 analysts was $1.05.

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