Citigroup Inc and Bank of America Corp (BofA) are facing the prospect of being sued by the US Department of Justice after officials broke off talks aimed at settling probes into the banks’ sales of mortgage-backed bonds.
Justice department officials suspended negotiations with the banks on Monday because they are unsatisfied with the offers, said a person familiar with the discussions who asked not to be named because they are confidential.
A civil lawsuit against Citigroup could be filed as early as next week, the person said.
The department has asked for more than US$10 billion from New York-based Citigroup and US$17 billion from Bank of America, though prosecutors are willing to consider proposals below those amounts, the person said.
Bank of America has offered about US$12 billion while Citigroup has put forward less than US$4 billion, the person said.
“Even though talks have broken off, it doesn’t mean they can’t be restarted,” after lawsuits are filed, said Matthew Axelrod, a former senior justice department official whose firm is handling lawsuits against banks, including Bank of America and Citigroup, over mortgage-backed securities.
The justice department is taking a tougher approach following criticism that it had not done enough to punish large institutions for their role in the collapse of home prices and ensuing financial market turmoil.
Prosecutors are demanding multibillion-dollar penalties from banks for wrongdoing including tax evasion and sanctions violations and have used the threat of lawsuits to reach settlements.
US officials are seeking more than US$10 billion from BNP Paribas SA to resolve a probe into transactions involving sanctioned countries, people familiar with the matter have said.
The US secured the largest criminal penalty in a tax evasion case last month with Credit Suisse Group AG’s US$2.6 billion payment.
The settlement demands of Citigroup and Bank of America, which is based in Charlotte, North Carolina, show that the US is not only seeking high-dollar resolutions from banks outside the country, according to Erik Gordon, a professor at the University of Michigan.
“The effect is to take some of the wind out of the argument that these numbers are unfairly punitive and outrageous,” Gordon said in an interview.
Citigroup is among at least eight banks under investigation by the justice department for misleading investors about the quality of bonds backed by mortgages as housing prices plummeted.
Other banks that have faced scrutiny include Credit Suisse and Wells Fargo & Co.
JPMorgan Chase & Co agreed to pay US$13 billion in November last year to resolve similar federal and state investigations.
Citigroup and the Justice Department have been negotiating a resolution since April, the person said.
US Associate Attorney General Tony West, who is overseeing probes of improper mortgage-bond underwriting by banks, told the bank in a phone call on Monday that it was not making acceptable offers, the person said.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg. The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday. The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band. Heavy sales of the local dollar by
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
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