Citigroup agrees to $590m subprime settlement penalty [Times of Oman]

NEW YORK: Citigroup agreed on Wednesday to pay $590 million to settle a class-action lawsuit brought by investors alleging that the New York bank failed to disclose its exposure to toxic subprime mortgage debt.

In the run-up to the financial crisis, the bank, like many other big financial institutions, either A or sold securities that were essentially giant pools of shoddy mortgages. When waves of struggling homeowners stopped making their monthly payments, these securities exacerbated the mortgage defaults, caused massive losses at big banks and brought on one of the worst financial crises since the Great Depression.

Subprime mortgages Shareholders and regulators have had a mixed record in their efforts to get compensation from banks that contributed to the near-collapse of the financial system. Several of the largest ones, including Wachovia and Merrill Lynch, have paid millions to investors and government agencies to settle charges tied to subprime mortgages. But some analysts say these settlements do not serve as enough of a deterrent to banks that contributed to the crisis.

Citigroup's proposed settlement, which must be approved by the US District Court in Manhattan, covers shareholders who acquired Citigroup stock from February 26, 2007, to April 18, 2008. Lawyers for the plaintiffs said it is unclear how many investors will be affected by the order. A hearing was set for January 15 to finalise the agreement.

In the lawsuit, filed in November 2007, shareholders claimed that the banking giant "concealed [its] failure to write down securities tied to subprime debt," known as collateralised debt obligations (CDOs).

Officials at Citigroup said in a statement that the bank denies the allegations but was entering into the agreement to avoid protracted litigation.

The company this week agreed to pay nearly $25 million to another group of investors who said they were misled about the quality of mortgage-backed securities they purchased just before the housing market crash. And a year ago, Citigroup paid $285 million to the Securities and Exchange Commission (SEC) for misleading investors about CDOs tied to the housing market. "Citi blindsided its investors and shareholders by not disclosing that it had all of this off-balance sheet exposure to this debt," said Janet Tavakoli, president of Tavakoli Structured Finance. "They were just stuffing junk into these CDOs."

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