Citigroup Said Close to $7 Billion Mortgage Settlement

Citigroup Inc. (C) may reach a $7 billion agreement with federal prosecutors that would include about $4 billion in cash to resolve a civil probe into sales of mortgage-backed bonds, a person familiar with the negotiations said.

An agreement with the U.S. Justice Department could be reached before Citigroup reports second-quarter earnings on July 14, according to the person, who asked not to be identified because the negotiations are private. Another person briefed on the talks said no final agreement will be reached before next week.

About $3 billion of the settlement would come through other forms of payment such as consumer relief, one of the people said. Mark Costiglio, a spokesman for New York-based Citigroup, declined to comment on the talks.

Citigroup, the third-biggest U.S. bank by assets, had offered less than $4 billion to settle a probe into bonds sold before the 2008 financial crisis while federal prosecutors had sought more than $10 billion, a person familiar with the matter said last month. The Wall Street Journal reported yesterday that an agreement could be near and the New York Times reported the $7 billion figure.

Citigroup is among banks facing investigations into whether they misled investors about the quality of bonds backed by mortgages as housing prices plummeted. Prosecutors have sought multibillion-dollar penalties from banks this year for wrongdoing including U.S. sanctions violations and helping clients avoid taxes.

Share Performance

Citigroup rose 0.2 percent to $47.34 at 11:23 a.m. in New York trading. The shares fell 9 percent this year through yesterday, compared with the 2.6 percent gain by the 24-company KBW Bank Index. (BKX)

Prosecutors broke off talks with Citigroup on June 9 and were preparing to sue the bank after it offered less than $4 billion to resolve the matter, said the person who spoke last month. The Justice Department could file a lawsuit, according to the person, who also said the bank’s offer included about $1 billion in cash and the rest in consumer relief.

Attorney General Eric Holder, who would approve any agreement, is traveling in Europe this week.

To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net Steve Dickson, Dan Kraut

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