Citi Fears Tarnished Reputation From Auction Rate Securities

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News today broke that Citigroup may be close to reaching a $100 million settlement with federal and state regulators over charges stemming from underwriting and marketing auction rate securities. What's more, Citi may buy back as much as $5 billion of the auction rate securities from investors.
Sources tell DealBreaker that what prompted the quick move to settle by Citi was not a fear that investigators would uncover wrong-doing. Citi executives are confident that they correctly disclosed the risks of the securities to customers who purchased them. Rather, Citi executives are concerned of further damaging their reputation. Many executives at Citi still remember that the reputation of the bank was badly tarnished by ongoing regulatory challenges and investigations a decade ago, and fear a revival of those problems.
What's more, the current chief executive of Citi was not in place at the time the securities were marketed. He is said by people familiar with the situation to be confident that the settlement will not reflect badly on him.
Of course, this story line serves the interest of Citi executives, who may want to paint the huge settlement deal as dealing with a perception problem rather than a substantive securities law issue. (And with that sentence we probably just guaranteed that these Citi executives will never speak to us again. Adios, guys.)

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