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TH E M R EP O RT | 63 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T LOCAL EDITION LOCAL EDITION LOCAL EDITION CitiGroup Investors File Suit Over Toxic RMBS THEIR COMPLAINT ALLEGES THAT THE BANK TURNED A BLIND EYE TO RMBS-RELATED ISSUES. NEW YORK // A group of Citigroup Inc. investors recent- ly filed a lawsuit against the bank, with the allegations that the bank failed to address problems related to toxic residential mortgage- backed securities (RMBS). The suit, filed by Pacific Investment Management Co. (PIMCO) and other investors, accuses Citigroup, headquartered in New York City, of disregard - ing problems related to toxic RMBS backed by $13.8 billion of mortgage loans, which inves- tors claim resulted in $2.3 billion in losses, according to multiple media reports. Reuters reported: "According to a complaint filed [in November] in a New York state court in Manhattan, Citigroup breached its duties as trustee for the 25 private- label trusts dating from 2004 to 2007 by ignoring 'pervasive and systemic deficiencies' in how the underlying loans were under - written or being serviced." "The investors said Citigroup looked askance at the loans' 'abysmal performance' out of fear it might 'jeopardize its close business relationships' with loan servicers including Wells Fargo & Co. and JPMorgan Chase & Co. or prompt them to retaliate over its own problem loans." Law360 reported: "It further alleges that Citibank was the target of government investigations and lawsuits over its allegedly deficient servicing operations." "The abysmal performance of the trust collateral—including spiraling defaults, delinquencies, and foreclosures—is outlined on monthly remittance reports that Citibank, as trustee, publishes and publicly files with the gov - ernment," the complaint claims. "Citibank did nothing to protect the trusts and certificate holders, choosing instead to deliberately ignore the egregious events of default for its own benefit and to the detriment of the class." Citigroup and PIMCO did respond when contacted for comment. Despite being hit with this lawsuit, Citigroup Inc. experi - enced a substantially profitable third quarter. Citigroup reported $4.3 billion in net income for the third quarter, or $1.35 per diluted share, up from 53 percent, or $2.8 billion ($0.88 per share), in the same quarter the prior year. The bank also has revenues that reached $18.7 billion, down from $19.7 billion in 2014. The company also returned $2.1 billion of capital to common shareholders and repurchased 36 million common shares. "The quarter had more than its fair share of volatility and our results speak to the resil - ience of our franchise globally," said Michael Corbat, CEO of Citigroup. "And despite rev- enue headwinds, we once again proved our ability to manage our risk, our expenses, and our capital. We remain on track to deliver our full-year efficiency and ROA targets. I feel good about the quality and consis - tency of our earnings over the course of this year, as we have continued to make solid progress against our core priorities. SECONDARY MARKET "Citibank did nothing to protect the trusts and certificate holders, choosing instead to deliberately ignore the egregious events of default for its own benefit and to the detriment of the class." — Pacific Investment Management Co.