Citigroup, BofA likely to face US Justice Dept lawsuits

The US Justice Department mulls lawsuits against the Citigroup and Bank of America (BoA) over the banks' sale of residential mortgage-backed securities after settlement talks broke down this week.

A civil lawsuit against the banks could be filed as early as next week, an analyst said.

There were earlier reports that BofA is negotiating with Department of Justice to resolve the civil investigations (See: BofA in tentative $12-bn deal with US regulators to resolve shoddy mortgages probe)

According to people familiar with the situation, Citigroup offered to pay less than $4 billion to settle the investigation, while BoA offered around $12 billion.

These were substantially lower than the Justice departments' claims of $10 billion and $17 billion, respectively.

The Justice Department is taking a tougher approach following criticism that it had not done enough to punish the banks for their role in the collapse of real estate prices as well as tax evasion and transactions involving sanctioned countries, in the run up to the 2008 financial crisis.

Citigroup is among the large eight banks under investigation by the Justice Department for misleading investors about the quality of bonds backed by mortgages.

JP Morgan Chase agreed to pay $13 billion in November to resolve a similar federal and state investigations.

The Citigroup sold about $91 billion of mortgage loans between 2005 and 2008, according to the bank's annual securities filing, while the BoA and firms it acquired issued about $965 billion between 2004 and 2008, and JPMorgan and firms it bought issued $450 billion.

BofA had also reached a deal in March with the Federal Housing Finance Agency to pay $9.3 billion to settle claims over mis-selling private-label mortgage-backed securities to Fannie Mae and Freddie Mac prior to the global financial crisis that later went sour. (See: Bank of America to pay $9.3 bn to settle mortgage-backed securities claims).