Citigroup & Deutsche Bank to Pay $165.5M to Settle MBS Claims

Citigroup and Deutsche Bank have agreed to pay $165.5 million to settle charges that they misled several failed credit unions about the risk involved with mortgage backed securities (MBS), according to the Associated Press and Bloomberg. Citigroup agreed to pay $20.5 million and Deutsche Bank is set to pay $145 million to make up the total settlement of $165.5 million.

The National Credit Union Administration (NCUA) said that the five wholesale credit unions failed in 2009 and 2010. Among the failed credit unions were U.S. Central, Western Corporate, Southwest Corporate, Members United Corporate and Constitution Corporate. These wholesale credit unions are called corporate credit unions and they provide services to the much larger group of retail credit unions. The NCUA issued a statement saying that it shared the $3.3 billion in costs of the failures among the 7,000 or so credit unions nationwide. According to the article, the NCUA has zeroed in on JP Morgan Chase, Goldman Sachs and Royal Bank of Scotland with similar allegations.

Another recent settlement agreement between Citigroup and the SEC for $285 million is pending approval by Manhattan District Judge Jed Rakoff, who is known for killing settlements and sending the parties back to the bargaining table. That proposed settlement is to put an end to charges that Citi defrauded investors by marketing and selling complex collateralized debt obligations (CDOs) without divulging that it was betting on the failure of the investment, as the housing market was on life support. Other huge settlements with firms for similar allegations were the $550 million agreement between the SEC and Goldman Sachs and a $153.6 million deal with JP Morgan Chase. These are only a few of the banks globally that have settled literally billions of dollars' worth of investor losses incurred as a result of being led to believe that these investment vehicles were safe and income producing going into the demise of the housing debacle.

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