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Settled: It's official. Citigroup and the Department of Justice reached a $7 billion mortgage-backed securities-related settlement. Here's the breakdown: a $4 billion cash penalty paid to Justice, $2.5 billion in mortgage relief for borrowers, and $500 million to state attorneys general and the Federal Deposit Insurance Corporation, the New York Times reports. The $4 billion payment to DOJ is the largest to date. Citigroup said it would take a $3.8 billion pre-tax charge in the second quarter. Separately, the Journal and the New York Times both report the U.S. planned to sue the bank and was prepared to make an annopuncement on June 17, but the capture of a key suspect in the Sept. 11, 2012, attacks on the U.S. consulate in Benghazi, Libya, threatened to overshadow the action against Citi. Or maybe they cancelled the plans to file the suit because as a Justice Department official reportedly told an outside lawyer in the Times article the department had "a lot going on" that day. Meanwhile, yet another expert looks back at the 2008 global economic crisis and decides it's a good example of how financial models can fall short when it comes to predicting a horrible downturn, and that human beings might do better. This time it's the head of Canada's central bank, who suggests this in the wake of central-bank economic models' failure to predict the crisis. Speaking of financial crises, Spain financially seems to be coming out of its real estate bust, maybe. Apparently bad loans are down slightly, but nonperforming assets are still weighing pretty heavily on individual banks' balance sheets. Wall Street Journal, New York Times, Washington Post, Financial Times
Banks continue to protest how tight the Basel III capital rules are. This time it's the Bank of England lobbying for an easing of the rules so smaller lenders won't be at such a disadvantage to larger players when it comes to offering mortgages and small business loans.
New York Times
Illinois could become the first state to bring legal action against debt settlement companies in connection with student loan practices Monday, according to the Times. The paper reports that this could be a sign these companies are moving away from traditional credit card and mortgage debt targets and seeing student loans as a greener pasture. Illinois attorney general Lisa Madigan said the companies often charged "the people who are struggling with the most debt" for help they could have gotten free from the Department of Education.
The Post's Editorial Board is looking forward to the end of quantitative easing. They think it will stave off possible asset bubbles and indicates growth and job creation have reached levels where they can continue without raising the Fed's balance sheet. Banks reliant on mortgage lending to any extent may disagree. Home loan volumes just haven't been quite the same since word first surfaced last year that quantitative easing would end. Sure, rate response hasn't been as bad as first thought, but any job creation or growth there may be in the economy recently doesn't seem to be doing all that much to restore mortgage volume at this point.