Rumored Citi settlement out of line

|By:, SA News Editor

The bank issued $91B in private-label MBS between 2005 and 2008, say Morgan Stanley's Betsy Graseck and Manan Gosalia. That's just 20% of what JPMorgan sold and 14% of Bank of America's issuance.

The reported $7B settlement would amount to 7.7% of Citigroup's (C -0.3%) pre-crisis issuance vs. JPMorgan's 2% settlement - this despite the fact that losses on Citi's MBS book were inline with its peer group. Nevertheless, the team notes these press rumors have been somewhat on the mark and cut their Q2 EPS estimate by $0.70 to $0.40 to account for the $4B hard-dollar amount (the other $3B is for borrower relief).

Up next is Bank of America (BAC -0.2%), which will now see boosted pressure to reach a deal with the DOJ, and Morgan has baked in a $12B settlement, or 1.8% of the face amount of securities issued. Other press reports have suggested a number closer to $17B.