By Reuters
Citigroup has agreed to pay $590 million to settle legal claims by shareholders that its executives misled them about the bank's growing problems before the financial crisis.
The bank denied the allegations Wednesday, but said it agreed to the deal to eliminate the cost and uncertainty of litigating the class-action suit.
Plaintiffs say Citigroup executives kept mum between February 2007 and April 2008 about huge losses the bank faced on complex mortgage investments. When the problem was disclosed, they say, Citigroup's share price plunged. They blame the bank for their losses.
The case, filed in late 2007, was one of the first major lawsuits related to the toxic investments that fueled the financial crisis in 2008. It's also among the biggest proposed settlements of any crisis-related case.
In a statement, the bank said it is "pleased to put this matter behind us." It called the proposed settlement "a significant step" toward resolving the reams of 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 $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.
The settlement is subject to court approval by U.S. district judge Hon. Sidney Stein in Manhattan.
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