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From Securities Regulation Daily, April 8, 2014

Citigroup and institutional investors reach $1.1-billion agreement on mortgage backed securities claims

By Jim Hamilton, J.D., LL.M.

Citigroup announced that it has reached an agreement with 18 institutional investors, represented by Gibbs & Bruns LLP, regarding the resolution of certain legacy securities and banking private-label securitization representation and warranty repurchase claims. Under the agreement, Citigroup said that it will make a binding offer to the trustees of 68 Citigroup-sponsored mortgage securitization trusts to pay $1.125 billion to the trusts, plus certain fees and expenses for which Citigroup has taken an additional charge of approximately $100 million in the first quarter of 2014. Citigroup also noted that the settlement resolves a significant legacy issue from the financial crisis.

The 68 trusts covered by the agreement issued in the aggregate $59.4 billion of residential mortgage-backed securities and represent all of the trusts established by Citigroup's legacy securities and banking business from 2005 to 2008, for which Citigroup affiliates made representations and warranties to the trusts. If accepted by the trustees, the agreement would release Citigroup's obligation to repurchase mortgage loans sold into the trusts or to make the trusts whole for outstanding or potential claims for breaches of representations and warranties on the loans.

Citigroup noted that the agreement would not release potential investor claims relating to alleged misrepresentations in the offering documents associated with the private-label securitizations, nor any potential regulatory actions. Further, the agreement does not cover mortgage loans sold through private-label securitization trusts via Citigroup's consumer mortgage business. The agreement is conditioned on, among other things, acceptance by the trustees of the applicable trusts, and court approval, if sought by the trustees.

Gibbs & Bruns noted that the institutional investors support the agreement and have urged the trustees to accept it. The institutional investors include Bayerische Landesbank, BlackRock Financial Management Inc., the Federal Home Loan Bank of Atlanta, the Federal Home Loan Mortgage Corp., Goldman Sachs Asset Management, L.P., and ING Investment Management LLC, among others. The agreement is subject to regulatory approval by the Federal Housing Finance Agency and acceptance of the offer by the trustees. Pursuant to the agreement, the institutional investors have agreed to use their reasonable best efforts to obtain court approval of the settlement, if the trustees elect to accept the offer and seek a judicial instruction concerning their decision to do so.

Companies: Citigroup Inc.; Bayerische Landesbank; BlackRock Financial Management Inc.; The Federal Home Loan Bank of Atlanta; The Federal Home Loan Mortgage Corp.; Goldman Sachs Asset Management, L.P.; ING Investment Management LLC

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