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Citigroup To Pay $730M In MBS Lawsuit Settlement

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NEW YORK (3/20/13)--Citigroup Inc. said Monday it has agreed to pay $730 million to settle lawsuits by investors in mortgage-backed securities (MBS) who claim Citi misled them in more than four dozen bond and preferred stock offerings over more than two years.

The National Credit Union Administration has filed similar lawsuits against securities dealers. This Citigroup case does not involve NCUA.  

Investors who purchased Citigroup's debt and preferred stock from 2006 through 2008 alleged in their lawsuit that the bank's disclosures contained omissions and misstatements (The New York Times March 18).

Plaintiffs in the lawsuit include the Arkansas Teacher Retirement Systems and Louisiana Sheriffs' Pension and Relief Fund. The agreement is the most recent to hit the biggest U.S. banks during a period in which investors are concerned about the extent of their potential legal costs (The Wall Street Journal March 18). 

The investors/plaintiffs had accused Citigroup of misleading them about loss-exposure on securities backed by home loans, understating loss reserves for high-risk residential mortgage loans, and claiming that risky assets were of high quality, said the Journal and Times.

Citigroup denied all allegations of wrongdoing and said it was settling to end litigation and to mitigate legal costs as well as minimize time spent in extended legal proceedings, according to the publications.

The proposed settlement would be the culmination of more than four years of litigation, the Times said.

NCUA has filed similar lawsuits against securities banks over MBS investments that contributed to the collapse of U.S Central FCU and Western Corporate FCU. NCUA has recouped more than $170 million for credit unions' share insurance fund by settling claims against Citigroup, Deutsche Bank Securities and HSBC (News Now Feb. 22).

FOMC Meeting Likely Will See Policy Steady, Say Economists

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WASHINGTON (3/20/13)--The Federal Reserve's monetary policymaking body will end its two-day March meeting today but is unlikely to change the Fed's $85 billion-a-month bond buying program or the near-zero targeted federal funds interest rates, according to economists surveyed before the meeting.

However, economists expect some tweaking in the wording of the policy statement because the economy has improved since the Federal Open Market Committee's (FOMC) Jan. 29-30 meeting, according to Business Insider (March 19).

The FOMC will delay the timing of the release of its after-meeting statement so it occurs closer to Fed Chairman Ben Bernanke's post-meeting press conference.  Normally there is a 90-minute lag between the two events. Beginning today, the statement will be released at 2 p.m. EDT, followed by the press conference at 2:30 p.m. That means News Now's update this afternoon will be an hour later than usual.

Since the Jan. 29-30, the last time the FOMC met, the economy has seen improvement in labor market conditions. However, the federal government failed to avert sequestration and events in Europe could pose downside risks. Several economists said they expected some language tweaking in the statement due to the improvements in the labor market.

"The net effect is likely to be no change in either the quantitative easing purchase pace or the forward guidance," said Michael Hanson, Bank of America Merrill Lynch senior U.S. economist (International Business Times March 19).

Currently the policy is for the Fed to buy $85 billion in bonds each month, and that is expected to continue until the labor market improves "substantially."  Interest rates will remain at 0%-0.25% until unemployment drops to 6.5% or inflation increases to 2.5%.

Watch for News Now's updates on today's meeting.

NEW: Fed Holds Steady On Monetary Policy

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WASHINGTON (Filed 2:45 p.m. ET 3/20/13)--The Federal Reserve's policymakers today kept their quantitative easing  bond-buying plan intact and continued its forecast of a 6.5% jobless rate by 2015, which means the federal funds target interest rates remain steady, at 0% to 0.25%.

The Credit Union National Association's economists will provide insight on the impact on credit unions in Thursday's News Now.

The Federal Open Market Committee, which is the key monetary policymaking body at the Fed, noted "a return to moderate growth following a pause late last year." The labor market has "shown  signs of improvement in recent months but the unemployment rate remains elevated."

The FOMC noted advances in household spending and business fixed investment, a stronger housing sector, but added "fiscal policy has become somewhat more restrictive." It also said inflation is running "somewhat below the committee's longer-run objective, apart from temporary variations" due to energy price fluctations. "Longer-term inflation expectations have remained stable."

The FOMC "expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate" of fostering maximum employment and price stability.

"The committee continues to see downside risks to the economic outlook," said FOMC, which "anticipates that inflation over the medium term likely will run at or below its 2% objective."

The committee will continue purchasing additional agency mortgage-backed securities (MBS)  at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month--known as its $85 billion per month quantitative easing plan.  It "is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency MBS in agency MBS and of rolling over maturing Treasury securities at auction." Together the actions "should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."

FOMC will continue the bond-buying "and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability."  It also will "take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives."

As for maintaining the federal funds rate at 0% to 0.25%, the committee "expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens."

In particular, the committee "currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."

In determining how long to maintain  its highly accommodative stance, the committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.  When it "decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%."

Voting for the FOMC monetary policy action were: Fed Chairman Ben S. Bernanke; Vice Chairman William C. Dudley; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.

Voting against the action was Esther L. George, who expressed concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.