Barclays has agreed to pay the US government $2billion, or £1.4billion, in settlement of a civil claim concerning the bank’s sale of residential mortgage-backed securities in the run up to the financial crisis.
After a three-year investigation, the US Department of Justice launched a civil suit claiming the bank ’caused billions of dollars in losses to investors’ by ‘fraudulently’ selling the mortgage-backed securities.
It also said Barclays ‘misled investors about the quality of the mortgage loans backing those deals’, which were sold between 2005 and 2007.
Barclays has not admitted liability to the allegations, but has agreed to stump up the cash, after initially refusing to settle.
Settlement: Barclays has agreed a £1.4bn settlement with the US Department of Justice over claims that it mis-sold mortgage-backed securities
It has been reported that the DoJ initially sought a much bigger penalty, closer to the relatively recent $7.2billion fine agreed by Deutsche Bank, or $5.3billion by Credit Suisse.
Two former Barclays executives, Paul Menefee and John Carroll, have also reached a combined settlement of £1.4 million to settle claims bought against them individually over their roles in the alleged mis-selling.
Jes Staley, chief executive of Barclays, said: ‘I am pleased that we have been able to reach a fair and proportionate settlement with the Department of Justice.
‘It has been a priority for this management team from the start to resolve these historic issues in a timely and appropriate manner wherever possible.
‘The completion of our restructuring in 2017, and putting significant legacy matters like this one behind us, mean Barclays is well positioned to produce stronger earnings going forward, and to start returning a greater proportion of those earnings to our shareholders over time. Accordingly, it remains our intention to pay a dividend of 6.5 pence for 2018.’
The US DoJ alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, based on mail fraud, wire fraud, bank fraud, and other misconduct.
State prosecutors said that the alleged scheme involved 36 residential mortgage-backed security deals covering more than $31billion of mortgage loans. More than half of the mortgages backing the securities defaulted, the suit alleged.
US authorities alleged that the borrowers whose loans backed those deals were ‘significantly less trustworthy’ than Barclays made them out to be, while the mortgaged properties were ‘systemically worth less’ than what had been presented to investors.
Investors had included credit unions, pension plans, charitable and religious organisations, university endowments, and financial institutions.
Barclays has not admitted liability to the allegations, but has agreed to trump up the cash
Michael Hewson, chief market analyst at CMC Markets, said: ‘Barclays shares don’t appear to have been too badly affected by this afternoons news that they will have to pay $2bn in civil penalties in relation to mortgage backed securities claims, though they are trading just above one month lows.’
Richard Donoghue, United States Attorney for the Eastern District of New York, said: ‘This settlement reflects the ongoing commitment of the Department of Justice, and this Office, to hold banks and other entities and individuals accountable for their fraudulent conduct.
‘The substantial penalty Barclays and its executives have agreed to pay is an important step in recognising the harm that was caused to the national economy and to investors in RMBS.’
‘The actions of Barclays and the two individual defendants resulted in enormous losses to the investors who purchased the Residential Mortgage-Backed Securities backed by defective loans’, FHFA-OIG Inspector General Wertheimer said.
In its last set of results, Barclays posted a bottom-line loss of nearly £2billion for last year, after suffering amid Donald Trump’s alterations to corporate tax and Carillion’s collapse.
The bank’s annual pre-tax profits increased by 10 per cent to £5.3billion last year, but were stung by a post-tax loss of £1.9billion, against profits of £1.6billion a year earlier.