The strange turn that led to Citigroup's $7B settlement

Citigroup (C) began the week with a couple of announcements. In addition to reporting quarterly earnings, the nation's fourth largest bank announced a $7 billion settlement with the Justice Department over subprime mortgages it sold in the run-up to the 2008 financial crisis. Calling Citigroup’s conduct “egregious” Attorney General Eric Holder said, “The penalty is appropriate given the strength of the evidence of the wrongdoing committed by Citi.”

As part of the deal, Citigroup will pay a $4 billion to the Justice Department, the largest civil penalty of its kind. The bank will pay an additional $500 million to state’s attorneys general and the Federal Deposit Insurance Corporation. Finally, $2.5 billion will be set aside as relief for struggling homeowners. However, the deal does not absolve Citigroup or its employees from further criminal charges.

The road to reach the settlement took a strange turn last month. According to reports, the DOJ gave notice to Citigroup in June that it was ready to sue the bank after the two sides couldn't agree on terms for a settlement. However, when Ahmed Abu Khattala was arrested in connection to the 2012 attack in Benghazi that killed four Americans, a lawyer for the Justice Department reportedly said, "We've got a lot going on right now," and put the lawsuit on hold. That delay brought the two sides back to the negotiating table, where they were able to reach this settlement.

Yahoo Finance Editor and Columnist Rick Newman said one of the reasons the stock had been moving up after the announcement was investor relief. The settlement, he said, “gets the government off of Citigroup’s back which is what this bank needs in order to move forward.”