CitiGroup Expand its Plans by 7 Billion$ in Settlements

Citigroup and the Justice Department have agreed to a $7 billion deal that will settle a federal investigation into the mortgage securities the bank sold in the run-up to the financial crisis, Michael Corkery writes in DealBook. The deal, announced on Monday morning, includes a $4 billion cash penalty to the Justice Department ‒ the largest payment of its kind ‒ as well as $2.5 billion in so-called soft dollars earmarked for aiding struggling consumers and $500 million to state attorneys general and the Federal Deposit Insurance Corporation. The bank, which is scheduled to announce second-quarter earnings at 8 a.m., said the settlement would result in a pretax charge of $3.8 billion before taxes in the period.
The deal caps months of contentious talks that began with a $363 million offer by Citigroup followed by a $12 billion demand from the Justice Department, a gap that stemmed from the radically divergent methods used to calculate the cost of the settlement, DealBook’s Ben Protess, Jessica Silver-Greenberg and Michael Corkery write. Citigroup linked its initial offer to the bank’s relatively small share of the market for mortgage securities. But the Justice Department rejected that argument, emphasizing instead what it saw as Citigroup’s level of culpability based on incriminating emails and other evidence it had uncovered.
The Irish drug maker Shire said on Monday that its board was prepared to recommend an improved takeover bid of 53.20 pounds a share, the equivalent of about $53 billion, that it received over the weekend from AbbVie, Chad Bray writes in DealBook. The latest offer is the fifth revised bid by AbbVie, which is based in Chicago.

The deal, if completed, would allow AbbVie to reincorporate in Britain and save millions of dollars in taxes, a process known as an inversion. Shire has its headquarters in Ireland and is listed in London. AbbVie is hoping to reach a deal for Shire before July 18, when it will have to make a firm offer or walk away for up to six months under British takeover rules.

Mario Draghi, the president of the European Central Bank, testifies on economic and monetary development before the European Parliament’s Committee on Economic and Monetary Affairs at 1:30 p.m. in Strasbourg, France. Happy Bastille Day.

The debt settlement industry, already accused of questionable tactics related to mortgages, has found a gold mine of new customers: those with student debt, Rachel Abrams and Jessica Silver-Greenberg write in DealBook. Federal and state regulators are now finding new instances of abuse as these debt settlement companies shift from mortgage and credit card debt to student loans.

On Monday, Illinois is expected to become the first state to bring legal action against debt settlement companies in connection with their student loan practices, contending in two separate lawsuits that Broadsword Student Advantage and First American Tax Defense duped vulnerable borrowers into paying for help that never arrived. The companies often misled customers about fees, according to the suits, and in some instances feigned affiliation with federal relief programs. In some cases, the Illinois attorney general contends, the companies charged customers for debt assistance that they could have received free from the Education Department.

Kerry to meet China's top leaders to discuss North Korea

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U.S. Secretary of State John Kerry meetsChina's top leaders on Saturday in an effort to persuade them to exert pressure on North Korea to scale back its belligerent rhetoric and, eventually, return to nuclear talks.

Travelling to Beijing for the first time as secretary of state, Kerry made no secret of his desire to see China take a more activist stance toward North Korea, which in recent weeks has threatened nuclear war against the United States.

As the North's main trading partner, financial backer and the closest thing it has to a diplomatic ally, China has a unique ability to use its leverage against the impoverished, isolated state, Kerry said in the South Korean capital Seoul late on Friday.

"There is no group of leaders on the face of the planet who have more capacity to make a difference in this than the Chinese, and everybody knows it, including, I believe, them," Kerry told U.S. executives.

"They want to see us try to reach an amicable resolution to this," he said. "But you have to begin with a reality, and the reality is that if your policy is denuclearization - and it is theirs as it is ours as it is everybody's except the North's at this moment - if that's your policy, you've got to put some teeth into it," he said.

Kerry is scheduled to see the top echelon of China's leadership on Saturday, including President Xi Jinping, Premier Li Keqiang and State Councilor Yang Jiechi, China's top diplomat who outranks Foreign Minister Wang Yi.

In remarks before reporters at the first meeting, neither Kerry nor Wang directly referred to North Korea, though the trip had "come at a critical moment", Wang said.

"Obviously there are enormously challenging issues in front of us and I look forward to having that conversation with you today to do exactly what you said - lift this conversation up, broaden it, set a roadmap, define for both of us what the model relationship (would) be and how two great powers, China and the United States, can work effectively to solve problems," Kerry told Wang.

Kerry's visit to Asia, which will include a stop in Tokyo on Sunday, takes place after weeks of shrill North Korean threats of war since the imposition of new U.N. sanctions in response to its third nuclear test in February.

North Korea has repeatedly said it will not abandon nuclear weapons which it said on Friday were its "treasured" guarantor of security.

"HUGE MISTAKE"

Beijing has been reluctant to apply pressure on Pyongyang, fearing the instability that could result if the North were to implode and send floods of refugees into China.

However, U.S. officials believe China's rhetoric on North Korea has begun to shift, pointing to a recent speech by Chinese President Xi Jinping in which - without referring explicitly to Pyongyang - he said no country "should be allowed to throw a region and even the whole world into chaos for selfish gain."

Kerry, who arrived in  early on Saturday, told reporters in Seoul that if North Korea's 30-year-old leader went ahead with the launch of a medium-range missile, he would be making "a huge mistake."

Kerry's visit coincided with preparations for Monday's anniversary of North Korean state founder Kim Il-Sung's birth, a possible pretext for a show of strength, with speculation focusing on a possible new intermediate missile test launch.

At a news conference in Seoul on Friday and in a U.S.-South Korean joint statement issued on Saturday, Kerry signaled the U.S. preference for diplomacy to end the tensions, but stressed North Korea must take "meaningful" steps on denuclearization.

"We will continue to encourage North Korea to make the right choice. If North Korea does so, we are prepared to implement the commitments under the 2005 Six-Party Joint Statement," it added, referring to the aid-for-denuclearization agreement.

The United States and its allies believe the North violated the 2005 deal by conducting a nuclear test in 2006 and pursuing a uranium enrichment program that would give it a second path to a nuclear weapon in addition to its plutonium-based program.

North Korea refuses to let South Koreans enter joint factory

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PAJU, South Korea (AP) — North Korea on Wednesday barredSouth Korean workers from entering a jointly run factory park just over the heavily armed border in the North in the latest sign that Pyongyang's warlike stance toward South Korea and the United States is moving from words to action.

The Kaesong move came a day after the North announced it would restart its long-shuttered plutonium reactor and a uranium enrichment plant, both of which could produce fuel for nuclear weapons that Pyongyang is developing and has threatened to hurl at the U.S. but which experts don't think it will be able to accomplish for years.

The North's rising rhetoric over recent weeks has been met by a display of U.S. military strength, including flights of nuclear-capable bombers and stealth jets at the annual South Korean-U.S. military drills that the allies call routine but that North Korea claims are invasion preparations.

The Kaesong industrial park started producing goods in 2004 and has been an unusual point of cooperation in an otherwise hostile relationship between the Koreas, whose three-year war ended in 1953 with an armistice. Its continued operation even through past episodes of high tension has reassured foreign multinationals that another Korean War is unlikely and their investments in prosperous dynamic South Korea are safe.

"The Kaesong factory park has been the last stronghold of detente between the Koreas," said Hong Soon-jik, a North Korea researcher at the Seoul-based Hyundai Research Institute.

He said tension between the Koreas could escalate further over Kaesong because Seoul may react with its own punitive response and Pyongyang will then hit back with another move.

It is unclear how long North Korea will prevent South Koreans from entering the industrial park, which is located in the North Korean border city of Kaesong and provides jobs for more than 50,000 North Koreans. The last major disruption at the park amid tensions over U.S.-South Korean military drills in 2009 lasted just three days.

Seoul's Unification Ministry spokesman Kim Hyung-suk said Pyongyang was allowing South Koreans to return home from Kaesong. Some 33 workers of about 860 South Koreans at Kaesong returned Wednesday. But Kim said about 480 South Koreans who had planned to travel to the park Wednesday were being refused entry.

Trucks streamed back into South Korea through its Paju border checkpoint in the morning, just minutes after heading through it, after being refused entry into the North.

Pyongyang threatened last week to shut down the park, which is run with North Korean labor and South Korean know-how. It expressed anger over South Korean media reports that said North Korea hadn't yet shut the park because it is a source of crucial hard currency for the impoverished country.

About 120 South Korean companies operate factories in Kaesong which produced $470 million of goods such as clocks, clothing and shoes last year that are trucked back to the South for export to other countries. The industrial park is crucial for the small businesses that operate there to take advantage of North Korea's low wages but not important for the South Korean economy overall.

It has more significance to cash-strapped North Korea since, according to the South Korean government, wages for North Korean workers totaled some $81 million last year. That has underlined the risks that North Korea's brinkmanship will result in a miscalculation that results in an even more dangerous polarization of the Korean peninsula.

Barring entry to South Koreas is a "slap in the face" after the South Korean government recently extended medical aid to the North, said Lee Choon-kun, a North Korea researcher at the Korea Economic Research Institute, a Seoul-based think tank. "I see this as a start for more provocative actions," he said.

"The North has made too many threats not to stop short of any real action."

Kaesong, initially conceived as a test case for reunification and reconciliation, also provides an irksome reminder for Pyongyang that what it lacks, the South has in abundance — material prosperity. An enormous gap emerged between the two Koreas in the decades after the Korean War as the South embraced a form of state-directed capitalism while the North adhered to communist central planning.

Every morning, North Korean workers commute to the complex on the edge of Kaesong on South Korean-made Hyundai buses. Once inside the gates of the complex, it's a world apart. The paved streets and sidewalks are marked with South Korean traffic signals and signs and the parking lots are filled with the Hyundai, Samsung and KIA cars driven by South Korean managers.

Inside several factories visited by The Associated Press last year, the posters on the walls are not party slogans but safety warnings. "Beware of fires," read one; "Wash your hands" read another. While most factories in North Korea are drafty, and few have running water, the facilities in Kaesong are equipped with hot water, flush toilets and air conditioners.

In the rest of the Korean Peninsula, it is illegal for Koreans from North and South to interact without government permission. But inside Kaesong, North Korean workers work side by side with South Korean managers, discussing orders and mapping out production.

However, they tend not to socialize with one another. At most factories, North Korean workers take their meals in cafeterias that serve basic stews and rice while the South Koreans dine separately.

Park Yun-kyu, who heads a men's apparel maker that employs 700 North Korean workers in Kaesong, said he was worried he couldn't send fresh food to his eight South Korean workers in Kaesong.

"They were working normally when I called them in the morning," said Park who returned to Seoul after being refused entry into Kaesong. "The problem is food. I hope North Korea would at least let us send food. We have to send food and some materials for production every day."

On Tuesday, a senior South Korean government official said Seoul has a contingency plan for its citizens in Kaesong. But he said the government hoped the tension would not lead to a shutdown of the complex. He spoke on condition of anonymity, saying he was not authorized to speak publicly to the media.