Citi to easily absorb costs of consent order; FDIC rule bigger hit
Recent consent orders over foreclosure issues signed between Citigroup (C), the Office of the Comptroller of the Currency and the Federal Reserve will end up costing the bank between $25 million and $30 million annually. The bank said the real hit will come from a new Federal Deposit Insurance Corp.'s rule that requires banks taking on more risks with their investments to pay out more for insurance. The new FDIC rule will be a $550 million annual hit, Citi CEO Vikram Pandit estimated. Federal regulators signed agreements with Citi and 13 others — mainly mortgage servicers — last week, including Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) after an investigation into breakdowns and mismanagement in their foreclosure processes. The banks will submit plans to regulators over the next 60 days, regarding how they will implement new requirements to establish a single point of contact for homeowners, ensure foreclosures are not pursued once a modification is approved, and provide remediation to borrowers who received a wrongful filing, among other requirements. "As we've looked at the impact, we've estimated it'll have a $25 million to $30 million annual increase in expenses for us. So, it's not that much," Citi Chief Financial Officer John Gerspach said in a conference call with investors Monday. Negotiations between the 50 state attorneys general and the lenders continue over a separate investigation into foreclosure issues. Pandit said the FDIC's issued a final rule that took effect April 1 will be a much costlier hit than the consent order. It requires banks taking more risks with their investments to pay more for insurance costs. The FDIC said larger institutions that pose a higher risk to the financial system will end up paying more. "New FDIC assessments to cost Citi $550 million annually," Pandit said. Increased servicing costs at BofA reached $1 billion over the last two quarters, according to the bank. And JPMorgan Chase reduced the value of its mortgage servicing rights by roughly $1.2 billion due to the new agreements. But Citi's Gerspach said its current cap rate on its mortgage servicing rights would see little effect. It currently stands at 1.15%, or $4.7 billion of a more than $430 billion mortgage servicing portfolio. "We don't expect it to have that much impact on MSR assets," Gerspach said. Write to Jon Prior. Follow him on Twitter @JonAPrior.