New York: Citigroup is set to pay more than $7 billion (Dh25.7 billion) to resolve a long-running US government investigation into the bank’s sale of mortgage-backed securities, people familiar with the matter said on Tuesday night.

The bank will pay roughly $4 billion in cash to the Department of Justice and $3 billion will be paid in mortgage relief to homeowners — such as principle reduction — as well as other payments to nearly half a dozen state attorneys-general, one person familiar with the matter said. Negotiations are continuing but if they stay on track a deal could be announced as early as next week, the people said.

The penalty is far greater than analysts expected the bank to pay to settle the civil investigation. At one stage talks broke down, but picked up again recently.

Citi was a much smaller issuer of mortgage-backed securities than either Bank of America or JPMorgan Chase. Analysts expected the bank would pay around $1.5 billion in any government settlement, but it emerged last month that the DoJ was seeking as much as $10 billion.

JPMorgan paid $13 billion in a settlement with regulators and agencies last autumn, a record civil settlement with a global financial institution. Since then the DoJ has raised the bar for banks, which are facing investigations across several fronts.

The DoJ, under attorney-general Eric Holder, has also been on the defensive as lawmakers and others have chided it for not holding banks and their executives accountable for the financial crisis, including over the sale of mortgage-backed securities.

BofA is also facing a potential civil lawsuit from the DoJ over its mortgage-backed securities sales, including those by Countrywide Financial and Merrill Lynch, two companies it acquired during the financial crisis.

Prosecutors have threatened to file a lawsuit unless they can strike a deal. The bank was in talks to pay $12 billion in cash and housing relief to resolve that investigation, but those talks also broke down. Now that Citi is paying $7 billion it is not clear whether that means the DoJ will seek more from BofA.

Citi declined to comment.

The Wall Street Journal first reported Citi was in talks to pay more than $4 billion to resolve the investigation.

— Financial Times