This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Citigroup Mortgage Settlement Sparks Debate

NEW YORK (TheStreet) -- Citigroup (C - Get Report) reached a $1.125 billion legal settlement tied to $59.4 billion in residential mortgage backed securities after the market closed Monday, but analysts can't agree on whether the bank faces substantially more exposure to the issue.

Citigroup shares were flat to slightly higher in the first half of trading Tuesday, in line with the broader market. Shortly after noon, the shares were up 0.24% to $46.66.

Keefe Bruyette & Woods analyst Fred Cannon, who has a market perform rating on Citi, wrote in a report late Monday that "legal costs will remain elevated" for the banking giant. He notes that "the settlement explicitly excluded $24.6 billion in securities issued through Citi's consumer mortgage business, CitiMortgage."

Further, Cannon states that "the agreement does not release investor claims relating to alleged misrepresentations in the offering documents."

In addition to the $24.6 billion figure cited by Cannon, Morgan Stanley analyst Betsy Graseck notes $4 billion in exposure tied to a separate Securities and Banking division of the bank, which has since been reorganized. Still, Graseck, who has an "outperform" rating on Citi, believes future settlements by Citigroup will be at least as cheap as this one, which she points out, cost the bank just 1.9 cents on the dollar. At that rate, future settlements would cost $542 million.

Must Read: Marijuana Tour Operator Goes Public Via Reverse Merger

"But we think Citi has largely reserved for that and any risk of incremental reserving is more than covered by our legal reserve build estimate of $3.1b in 2014," Graseck writes.

KBW's Cannon contends the agreement reached by Citigroup with plaintiffs' law firm Gibbs & Bruns is "in line with"ones the same law firm reached with Bank of America (BAC - Get Report) and JPMorgan Chase (JPM). The Bank of America mortgage settlement is still awaiting final approval from a judge, however, as some investors, most notably AIG (AIG) continue to push for a better deal.

Morgan Stanley's Graseck points out a "noticeable difference" in that Citigroup's settlement does not resolve claims over servicing, as the Bank of America and JPMorgan ones did.

Graseck wonders whether Citi made a "strategic move" to "'fast-track' the settlement given release of servicing claims is stalling [Bank of America's] settlement"

WATCH: More videos from Jim Cramer on TheStreet TV

Follow @dan_freed

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.56 0.00%
C $46.28 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs