Morgan Stanley surprised by reported Citi settlement size
Represents high proportion of bond issuance
Citi [C] is said to be nearing a settlement with the Justice department in regard to a mortgage probe investigating the allegation of fraud and document mishandling according to the Wall Street Journal.
According to the report, the issue at hand is the total amount.
That's appears to be a remaining sticking point to settlement.
Citigroup offered about $4 billion, while the government was seeking close to $7-10 billion. That is a figure the bank found "objectionable" according to people familiar with the matter, according to the article.
According to MS analysts Betsy Graseck and Manan Gosalia, even a $7 billion settlement may be too dire, when compared to the recent JPMorgan settlement:
Citigroup only issued $91B in PLS between 2005-08, or 20%/14% of what JPMorgan Chase/Bank of America issued. Reported $7B DoJ ask is 7.7% of Citigroup’s pre-crisis PLS issuance, higher than JPMorgan’s 2% settlement, despite the fact that losses in Citigroup’s PLS book were in-line with peer group.
"Graseck and Gosalia think Bank of America is next," writes Levisohn, which also falls in line with the WSJ coverage.