Citigroup Inc. this week has agreed to pay $590 million to settle a class-action shareholder lawsuit claiming that the New York-based bank failed to disclose exposure to subprime and other risky assets leading up to the financial crisis.
Citigroup was among the largest bailout recipients—needing a $45 billion federal loan—in 2008 during the height of the financial crisis.
The bank, like many others at the time, securitized and held onto billions of mortgage-backed securities and collateralized debt obligations (CDO).
When the subprime crisis hit, shaking the confidence of the U.S. real estate market, the valuations of such securities tanked after homeowners struggled to make their monthly mortgage payments.
Citigroup’s settlement—which is still subject to judge approval—covers shareholders who bought Citigroup stock between Feb. 26, 2007 and April 18, 2008. During this period, the company’s shares (NYSE: C) declined around 55 percent in value.
In a lawsuit filed in late 2007, shareholders alleged that the bank failed to properly disclose its exposure to the housing market, claiming that it had sold off the majority of its securities, but failed to tell investors that it was also guaranteeing billions worth of CDOs. In addition, the lawsuit alleged that Citigroup sold some of the assets to affiliated companies.
With the settlement, Citigroup will pay the amount to extinguish the lawsuit, however, the bank will not admit or deny those charges.
“This settlement is a significant step toward resolving our exposure to claims arising from the period of the financial crisis,” the bank said in a statement Wednesday. The bank also said that it is a different type of institution today compared to 2007, and that it has higher risk management standards in place.
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