New York: Citigroup on Wednesday agreed to pay USD 590 million to settle a lawsuit filed by shareholders that it had misled them on the bank’s exposure to subprime mortgage debt before the financial crisis that hit the world in 2008.
According to reports, the case, filed in 2007, is also one of the major lawsuits related to the toxic investments that led to the financial crisis in 2008, and the outcome is seen as one of the biggest proposed settlement of any crisis-related case.
However, the bank is reported to have denied the allegations despite having agreed to the deal to remove the cost and uncertainty of litigating the class-action suit.
In the case filed, the petitioners said the executives of Citigroup did not inform them of the huge losses suffered by the bank from mortgage investments and when it was disclosed in 2008, the share of Citigroup had plunged thus leading to shareholders’ losses.
As per a reported statement, the bank said it was "pleased to put this matter behind us" while calling the proposed settlement "a significant step" toward resolving all the litigation it faces as a result of the financial crisis.
Citigroup was one of the banks hit hardest by the crisis. As it faltered in the fall of 2008, the government made stronger banks take multi-billion dollar bailouts in part to mask Citi's weakness. Citi took direct bailouts totaling USD 45 billion and relied heavily on other emergency programs from the Federal Reserve. It has repaid the money with interest.
The bank said in its statement that it is "a fundamentally different company today than at the beginning of the financial crisis," having overhauled its risk management, reduced its risky investments and sold off non-core businesses.
Citigroup said it already has set aside enough money to cover the cost of the settlement.
With Agency Inputs
First Published: Thursday, August 30, 2012, 10:07