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Citi Investors Sue Bank for Billions Over Faulty RMBS

gavel-fiveA group of Citigroup Inc., investors recently filed a lawsuit against the bank, with the allegations that the bank failed to address problems related to toxic residential mortgage-backed securities (RMBS).

The suit, filed by Pacific Investment Management Co., (PIMCO) and other investors, accuses Citigroup of disregarding problems related to toxic RMBS backed by $13.8 billion of mortgage loans, which investors claim resulted in $2.3 billion in losses, according to multiple media reports.

Citigroup is alleged to have breached its duties for 25 private-label trusts during a three-year period from 2004 to 2007, according to a complained filed in a New York state court, Reuters reported. The suit alleges that the bank ignored “pervasive and systemic deficiencies” in how the way the underlying loans were underwritten or serviced.

According to Law360, the complaint further alleges that Citibank’s allegedly deficient servicing operations resulted in the bank being targeted for government investigations and lawsuits, and that Citibank failed to protected trusts and certificate holders by deliberately ignoring “the egregious events of default” for the bank’s own benefit.

Citigroup and PIMCO did not immediately respond when contacted for comment.

Despite being hit with this lawsuit, Citigroup Inc., experienced a substantially profitable third quarter.

Citigroup reported $4.3 billion in net income for the third quarter, or $1.35 per diluted share, up from 53 percent or $2.8 billion, or $0.88 per share, in the same quarter a year ago. The bank also has revenues that reached $18.7 billion, down from $19.7 billion last year.

The company also returned $2.1 billion of capital to common shareholders and repurchased 36 million common shares.

"The quarter had more than its fair share of volatility and our results speak to the resilience of our franchise globally," said Michael Corbat, CEO of Citigroup. "And despite revenue headwinds, we once again proved our ability to manage our risk, our expenses and our capital. We remain on track to deliver our full-year efficiency and ROA targets. I feel good about the quality and consistency of our earnings over the course of this year, as we have continued to make solid progress against our core priorities.

About Author: Xhevrije West

Xhevrije West is a talented writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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