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Citi Put-Back Reserve Rises To $952 Million

Monday, 18 Oct 2010 | 9:03 AM ET

Citigroup set aside a $322 million reserve for mortgage repurchases, the bank said in its quarterly earnings.

Citigroup Center
AP
Citigroup Center

That brings the total amount of reserves up to $952 million.

Last week, investors sold off bank stocks after chatter began to spread about repurchase risk being much higher than expected.

The idea is that banks may have to repurchase mortgage loans sold to investors as securities, perhaps because mortgage pools didn't live up to the representations and warranties made in the sales materials.

Although this risk has been known for years, recently investors started to worry that the foreclosure moratoriums are evidence of faults in the mortgage and securitization processes.

Some analysts have estimated that some of the largest banks could face "put back exposure" amounting to tens of billions of dollars. Others regard that number as far too extreme. "Put back exposure" is the currently fashionable term for "repurchase risk."

Citi doesn't sound too worried about this. In fact, they say their reserves for put-backs declined.

"Revenues also reflected an addition of $322 million of mortgage repurchase reserves related to North America residential real estate, compared to $347 million in the prior quarter," the quarterly statement reports.

You can expect, however, that the 11 A.M. conference call will be full of questions about this.

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