Citigroup Profit Falls 96% on Costs to End Mortgage-Bond Probe

Results beat analyst estimates; $7 billion mortgage settlement announced

CEO Michael Corbat of Citigroup. (Photo: AP) CEO Michael Corbat of Citigroup. (Photo: AP)

Citigroup Inc., the third-biggest U.S. bank, said second-quarter profit tumbled 96% on $3.7 billion in costs tied to a mortgage-bond settlement with U.S. authorities.

Net income fell to $181 million, or 3 cents a share, from $4.18 billion, or $1.34, a year earlier, the New York-based company said today in a statement. Excluding special items, profit was $1.24 a share. The average estimate of 25 analysts surveyed by Bloomberg was $1.05.

Citigroup and U.S. authorities announced a $7 billion agreement earlier today to resolve the probe. The deal, signed over the weekend, requires the company to pay $4 billion to the Justice Department, and a total of $500 million to state attorneys general and the Federal Deposit Insurance Corp. A further $2.5 billion will go toward consumer relief, according to the company.

“Despite the significant impact of today’s settlement on our net income, our capital position strengthened,” Chief Executive Officer Michael Corbat said in the statement.

Corbat, 54, follows his counterparts at bigger banks in grappling with regulators over allegations of misrepresenting the quality of mortgage-backed bonds sold to investors. JPMorgan Chase & Co., the largest U.S. lender, agreed in November to pay $13 billion to resolve similar federal and state probes. The government has sought about $17 billion from No. 2 Bank of America, a person familiar with the talks has said.

Settlement Tally

Including the charge announced today, Citigroup has disclosed more than $10.5 billion in legal and related costs since the start of 2012, according to data compiled by Bloomberg.

Citigroup had been discussing a settlement since April, a person familiar with the matter said last month, and discussions broke down June 9 after the bank’s offers failed to satisfy prosecutors. Government officials had demanded more than $10 billion to resolve the issue, while Citigroup raised its offer to less than $4 billion, the person said.

Corbat has also faced other setbacks this year, including a $400 million loan fraud at Citigroup’s Mexico unit, the rejection by regulators of a proposed dividend increase in March, and a slowdown in bond trading, which accounted for 17% of Citigroup’s revenue last year.

The Federal Reserve rejected Citigroup’s annual capital plan earlier this year, citing deficiencies in the bank’s ability to project revenue and losses in its global operations. Regulators rejected the firm’s request to quintuple its dividend and repurchase $6.4 billion of shares.

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