Citigroup Will Buy Back $7B of Bad Debt, Pay $100M Fine

Deal with SEC, NY state seen as 'face-saving,' could mean more ahead
By Harry Kimball,  Newser Staff
Posted Aug 7, 2008 2:12 PM CDT
Performance of a benchmark index of 24 national money center banks and leading regional institutions including Citigroup.   (AP Photo)
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(Newser) – Citigroup has agreed to buy back $7 billion in risky debt it marketed to consumers as safe and equivalent to cash, Reuters reports. Today’s deal, struck with New York's attorney general and the SEC, also requires the bank to pay fines totaling $100 million, and reimburse customers who took a loss on auction-rate debt.

Analysts see Citi’s “face-saving” measure as a harbinger of things to come. “If Citi is able to pull this off,” one insider said, “other banks that have sponsored these programs could be under pressure to do something similar.” Citi has also pledged to use its “best efforts” to deal with another $12 billion in debt sold to institutional customers.