Citigroup said it agreed to pay $7 billion to settle a US government investigation into mortgage-backed securities the bank sold in the run-up to the 2008 financial crisis.

The settlement figure was more that twice what many analysts expected earlier this year but less than the $12 billion the government had sought in negotiations with the bank.

Citigroup said it would pay $4.5 billion in cash and provide $2.5 billion in consumer relief.

The bank said it would take a related pre-tax charge of about $3.8 billion in the second quarter. The bank is scheduled to report results before the market opens on Monday.

Citigroup’s shares were up 1.4 per cent at $47.65 before the bell.

Citigroup is the second major bank to settle with authorities since President Barack Obama ordered the formation of a task force to investigate the sale and packaging of toxic home loans.

“The penalty is appropriate given the strength of the evidence of the wrongdoing committed by Citi,” US Attorney General Eric Holder said in a statement on Monday.

“Despite the fact that Citigroup learned of serious and widespread defects among the increasingly risky loans they were securitizing, the bank and its employees concealed these defects,” Holder added.

Citigroup said in a statement the $4.5 billion cash portion consisted of a $4 billion civil payment to the Justice Department and $500 million in compensatory payments to state attorneys general and the Federal Deposit Insurance.

Reuters