WASHINGTON (AP) - Citigroup has agreed to pay $7 billion to settle a federal investigation into its handling of risky subprime mortgages, admitting to a pattern of deception that Attorney General Eric Holder said "shattered lives" and contributed to the worst financial crisis in decades, the Justice Department said Monday.
The settlement represents a moment of reckoning for one of the country's biggest and most significant banks, which is now accountable for providing some financial support to Americans whose lives were dismantled by the largest economic meltdown since the Great Depression.
In addition to a $4 billion civil penalty being paid to the federal government, the bank will also pay $2.5 billion in consumer relief in part to help borrowers who lost their homes to foreclosure and about $500 million to settle claims from state attorneys general and the Federal Deposit Insurance Corp.
The agreement does not preclude the possibility of criminal prosecutions for the bank or individual employees in the future, Holder said.
The $7 billion settlement, which represents about half of Citigroup's $13.7 billion profit last year, is the latest substantial penalty sought for a bank or mortgage company at the epicenter of the housing crisis. The Justice Department, criticized for not being aggressive enough in targeting financial misconduct, has in the last year reached a $13 billion deal with JPMorgan Chase & Co., the nation's largest bank, and also sued Bank of America Corp. for misleading investors in its sale of mortgage-linked securities.
Yet the settlement packages pale in size compared to the broader damages caused by the recession. The unemployment rate spiked to 10 percent as millions lost their jobs and their homes, causing losses that totaled in the trillions of dollars.
Public advocacy groups criticized the settlement as a sweetheart deal.
"In the context of the damage done, the damage even described by the attorney general, we're not even in the same ballpark," said Bartlett Naylor, a financial policy advocate for Public Citizen, which represents consumer interests.
The settlement stems from the sale of toxic securities made up of subprime mortgages, which led to both the housing boom and bust that triggered the recession.