Though down so far for the day, Citigroup (C 3.06%) is up a healthy 2.72% for the week, which is surprising considering the disturbing news shareholders received on Wednesday.

Return of the financial crisis
A Tuesday court filing reported by Financial Times on Wednesday revealed that Citi has settled a lawsuit filed in 2011 by the Federal Housing Finance Agency over bad mortgages sold to Fannie Mae and Freddie Mac. The suit claimed that between 2005 and 2007, Citi sold the two government-run housing giants poorly underwritten mortgage-backed securities to the tune of $3.5 billion.

Neither side has commented on the settlement, so there's no official word yet what Citi is on the hook for, but according to Financial Times, if precedent holds, the superbank will owe the entire amount. Citi is the first of the big banks to settle this particular lawsuit. 

Just get it over with
Despite a potential $3.5 billion bottom-line haircut, Citi shareholders are acting not just surprisingly calm but practically euphoric. I had initially theorized that shareholders could read this development in either of two ways:

  • One, it's good news because it's yet another sign Citi is putting more of its crisis-related problems behind it, and there should be less of these payouts moving forward.
  • Two, it's bad news because it's yet another sign that Citi has not finished dealing with its crisis-related problems, and there will be still more and more of these payouts moving forward.

I came down on the side of the optimists, and it looks like the positive view of this settlement did indeed trump the negative view.

I place a lot of value in a company's leadership, and I've become more and more a fan of CEO Michael Corbat, who seems to be taking the long-term view of his bank's health and his shareholders' interests, which go hand in hand. It's possible that Corbat saw the writing on the wall for this suit, knew there was no way out, and just wanted to get it over with. To me, that's smart thinking.

Of course, it's also possible that because an official number hasn't yet been released by the FHFA or Citigroup regarding this settlement, shareholders are putting their heads in the sand, buying away, and hoping for the best. But I doubt that. News like this travels fast, and if the market was going to react negatively, I think it already would have.

Of course, all of the big banks were up for the week, as were the markets, and Citigroup may have just been along for the ride. For this reason, here at The Motley Fool, we stress a long-term view of investing. It can be very difficult to pin down a particular reason for a single stock's daily gain or loss.

Our advice? Tune out the market noise, tune into the fundamentals of the companies you're invested in, and leave the obsessive stock-price checking to the day traders: Your broker might not thank you, but your portfolio will.