Citi settlement will recoup Illinois pension losses

Illinois will receive $84 million as part of a national $7 billion settlement resolving allegations by federal and state authorities that Citigroup Inc. sold risky mortgage-backed securities that harmed investors, which included pension systems and communities.

More than half the money headed to Illinois will fully compensate the state's pension funds for losses suffered from 2006 to 2007, when they were misled by Citi, according to the Illinois attorney general's office.

Citigroup will pay $33.04 million to the Illinois Teachers' Retirement System, $3.12 million to the State Universities Retirement System and $7.83 million to the Illinois State Board of Investment, which oversees the State Employees' Retirement System, General Assembly Retirement System and Judges' Retirement System.

An additional $40 million will be dedicated to consumer relief, and an independent monitor will be appointed to help distribute the money.

"This relief will fully restore the losses Illinois' pension systems incurred as a result of Citigroup's fraudulent schemes in the mortgage-backed securities market, and it will provide much-needed aid to Illinois homeowners who are still paying for Wall Street's reckless actions," Illinois Attorney General Lisa Madigan said in a statement.

Nationally, the settlement includes a $4 billion civil payment to the Justice Department, the largest to date, $500 million to state attorneys general and the Federal Deposit Insurance Corp., and $2.5 billion in consumer assistance that will include construction of affordable multifamily rental housing, and mortgage principal reduction and forbearance for underwater and distressed borrowers.

"The bank's misconduct was egregious, and under the terms of the settlement, the bank has admitted its misdeeds in great detail," U.S. Attorney General Eric Holder said at a Monday news conference announcing the settlement.

Citi is the second major bank to settle with authorities since President Barack Obama ordered the formation of a task force to investigate the sale and packaging of toxic home loans at the center of the 2008 financial crisis.

JPMorgan Chase last year agreed to pay $13 billion to settle government inquiries over the packaging of toxic mortgages.

Last year, Citi settled with the Federal Housing Finance Agency, overseer of Fannie Mae and Freddie Mac, for $250 million. The finance agency had sued the bank over soured mortgage securities sold to the taxpayer-owned entities.

Citi said the assistance would be provided by the end of 2018. The settlement, signed over the weekend, ended months of negotiations, during which the government threatened to sue the bank, sources said.

Earlier Monday, Citi said it took a related pretax charge of about $3.8 billion in the second quarter, which led the bank to report a 96 percent decline in earnings.

Citi shares closed Monday up 3 percent, at $48.42.

Last week, Holder declined to meet with Bank of America CEO Brian Moynihan to craft a similar settlement, and no talks have taken place since the second week of June, according to people familiar with the matter. In a letter sent in the second half of June, Holder told Moynihan that the parties remained too far apart for a meeting to be productive, one source said.