Thursday, 19 July, 2018

Barclays to Pay $2B to Settle RMBS Case

Barclays bank Barclays agrees $2bn fine in US for mortgage misselling
Kelvin Reese | 30 March, 2018, 08:07

The department's civil action against Barclays alleged that the bank caused billions of dollars in losses to investors through a fraudulent scheme to sell 36 bundles of toxic mortgage assets between 2005 and 2007.

Additionally, the Department of Justice reached similar settlements with two Barclays' employees involved with subprime residential mortgage-backed securities.

Barclays Capital struck a $2 billion settlement Thursday to resolve federal claims over its sale of shaky mortgage loans in the lead-up to the 2008 financial crisis.

"The substantial penalty Barclays and its executives have agreed to pay is an important step in recognizing the harm that was caused to the national economy and to investors in (residential mortgage-backed securities)", said Richard Donoghue, the U.S. Attorney for the Eastern District of NY.

The final deal is lower than the $5 billion sum that the USA authorities had asked Barclays to pay earlier in negotiations, as reported back in 2016.

The settlement, described by Barclays Chief Executive Jes Staley as "fair and proportionate", resolves the bank's largest outstanding legal issue in the United States, and could reassure investors who had been braced for a potentially larger fine.

The $2 billion penalty is less than the settlements reached by Goldman Sachs, JPMorgan Chase and other major banks over their pre-crisis mortgage deals.

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Accusing Barclays of fraud in an unprecedented 2016 complaint, the Justice Department described the bank's losses as "catastrophic".

But Barclays vowed to fight the lawsuit, saying it had an obligation to its shareholders to defend itself against "unreasonable allegations and demand".

"Today's settlement holds accountable those who waste, steal or abuse funds in connection with FHFA or any of the entities it regulates", she said.

"Solely to put this matter behind him, Mr. Menefee has agreed to a settlement in which he has not admitted any wrongdoing, ” lawyers representing Menefee said".

The agreement settles a civil action filed in December 2016 in which the U.S. sought civil penalties for alleged conduct related to Barclays' underwriting and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007.

The department alleged that the borrowers whose loans backed those deals were "significantly less trustworthy" than Barclays made them out to be.

The bank last month reported a £1.9bn loss for 2017 after U.S. tax reforms and an accounting write-down from the sale of its Africa businesses resulted in big one-off charges.

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