Citigroup agreed yesterday to pay $7bn to settle a US federal investigation into "toxic" mortgage products the bank sold in the runup to the financial crisis.
The agreement was hammered out during months of increasingly tense talks between Citigroup and regulators, at the start of which the bank had offered to pay $363m to settle the investigation, arguing that its fine should be a fraction of the $13bn JP Morgan agreed to pay to settle its issues last year.
It came as the US justice department continued to negotiate a settlement with rival Bank of America over the sale of the mortgage products - the bundles of repackaged home loan debt that were widely blamed for precipitating the worst financial crisis since the Great Depression.
"The bank's misconduct was egregious," attorney general Eric Holder said yesterday.
Citigroup admitted to many of its misdeeds "in great detail" the Justice Department said. According to a statement of facts released by the government and agreed by the bank, Citigroup executives ignored their own warnings and misrepresented the quality of the subpar mortgages they were selling to investors.
In an internal email cited by the government one Citigroup trader stated the bank "should start praying" because so many of the investments it had made were about to fail.
Despite knowledge that many of the loans were failing or likely to, Citigroup packaged up the home loans and sold them to investors. "Our teams found that the misconduct in Citigroup's deals devastated the nation and the world's economies, touching everyone," said Loretta Lynch, the US attorney from Brooklyn.
Citigroup will pay $4bn in cash to the justice department - the largest payment of its kind - and a further $500m will go to state attorney generals and the Federal Deposit Insurance Corporation.
A payment of $2.5bn has been earmarked for struggling consumers and will be used to help homeowners by reducing the principals on home loans and other relief programmes as well as financing the construction of affordable rental housing.
"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," Citigroup's chief executive, Michael Corbat, said in a statement.
Holder said the settlement did not absolve "Citigroup or its individual employees" from future criminal charges.
The latest fine follows the justice department's $8.9bn fine on BNP Paribas earlier this month and its $2.6bn fine on Credit Suisse. Credit Suisse pleaded guilty to facilitating tax evasion by US citizens. BNP was charged with violating US banking laws by dealing with countries including Iran that are subject to US sanctions.
Meanwhile justice department negotiations with Bank of America over its role in selling mortgage-related products have stalled, with Holder refusing to see BofA chief executive Brian Moynihan in person because he argues the two sides are too far apart on a settlement.
Holder has moved to toughen the justice department's stance on banks after criticism that earlier fines had treated financial institutions too lightly. In a video address in May, Holder said: "There is no such thing as 'too big to jail"
The fine came as Citigroup released its second quarter results. Profits plunged 96% as the bank took a $3.8bn charge tied to the settlement. The bank reported a profit of $181m, compared with $4.18bn for the same three months last year.