Citibank braced for $7bn mortgage mis-selling bill

Tim Wallace
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Citibank is in negotiations with the Department of Justice (Source: Getty Images)
Citibank is preparing for a $7bn (£4bn) settlement to cover mortgage sales in the years before the financial crisis, it emerged yesterday.

The giant US lender is in negotiations with the Department of Justice over the case, which relates to mortgages being packaged up and sold to investors and government bodies.

The loans had been sold as premium assets, but were hit hard by the financial crisis.

Citi is following JP Morgan, which paid a $13bn settlement last November for this and other wrongdoing.

The bank declined to comment on the ongoing negotiations. Citi’s shares held flat on the announcement, falling just 0.4 per cent on the day.

The muted share performance came as analysts at JP Morgan downgraded BNP Paribas after its enormous US settlement last week. The leading French bank was hit by an $8.9bn charge for breaking sanctions.

Such an enormous fine does not threaten the health of the bank or require it to raise more capital, but it does undermine its returns.

“The penalty has wiped out the excess capital – the capital return profile is no longer attractive with some downside risk to dividend payout target of around 45 per cent and limited room for share buybacks,” analyst Delphine Lee said, downgrading the stock from overweight to neutral.

By contrast she upgraded Deutsche Bank to overweight, despite the threat of sanction breaking fines hanging over it. Following its successful capital raising round, she has put a target price of €33 on the bank, where shares are currently priced at €26.

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