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US DoJ to sue Citi, BofA over shoddy mortgage bonds sale

BBR Staff Writer Published 16 June 2014

The US Department of Justice (DoJ) is likely to sue Citi and Bank of America (BofA) over the alleged sale of private-label mortgage-backed securities by the lenders in the run-up to the 2008 financial crisis.

Citigroup

A person familiar with the discussions was quoted by Bloomberg as saying that the move follows failure of talks aimed at resolving the probe as the DoJ officials were unsatisfied with the offers made by the banks.

A civil lawsuit against Citi is likely to be filed in the US District Court in Brooklyn, US, as early as this week, the person added.

Having initially sought more than $10.6bn from Citi and $17bn from BofA, the DoJ was however, willing to consider offers below the requested amount.

While BofA offered around $12bn, the New York-based Citi had offered to pay less than $4bn to settle the charges, prompting the DoJ prosecutors to suspend negotiations last week.

Both Citi and the DoJ have been negotiating a settlement since April, according to the source.

Meanwhile, Citi spokesmen Mark Costiglio and the DOJ spokesman Brian Fallon refused to comment on the report.

Citi sold approximately $91bn of mortgage loans packaged into private-label mortgage debt, which is not guaranteed or issued by government agencies, to the investors between 2005 and 2008, according to the bank's annual securities filing.

On the other hand, BofA's Merrill Lynch unit is believed to have issued about $965bn between 2004 and 2008.

The DoJ had already reached a $13bn settlement with JPMorgan Chase, which is accused of selling $450bn mortgage bonds, to resolve similar federal and state investigations in November 2013.

Image: Citi is likely to be sued by the US DoJ over the alleged sale of shoddy mortgages in the run-up to the financial crisis. Photo: Paulscf.