Barclays Finalizes Mortgage Securities Probe with $2 Billion Settlement

Barclays finalized an agreement to pay US authorities $2 billion to settle claims that it misled investors with residential mortgage-backed securities it sold in the run-up to the 2008 financial crisis, the US Department of Justice said on Thursday.

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

As part of the settlement, the lender acknowledged that home loans it pooled into the securities did not meet underwriting guidelines and that “it knew it was peddling investments that were likely to fail,” US attorney for the eastern district of New York said in a statement announcing the deal.

“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 recognizing the harm that was caused to the national economy and to investors in RMBS,” he added.

Barclays added that it was pleased to have reached an amicable settlement that allows the bank to put this legacy matter behind it.

Authorities extracted huge fines

Before the Barclays deal, US regulators had already fined several major banks more than $50 billion over their dealings in mortgage-backed securities. Bank of America Corp., which had the largest such settlement, agreed to pay $16.7 billion over its sale of toxic mortgage securities, split between cash and consumer relief.

The deal marks a significant milestone for the British bank as it clears the biggest legal issue, which allows the lender to go ahead with its restructuring efforts under his current CEO Jes Staley, who was not at the bank at the time of the RMBS sales.

“I am pleased that we have been able to reach a fair and proportionate settlement with the Department of Justice. Putting significant legacy matters like this one behind us means Barclays is well positioned to produce stronger earnings going forward and to start returning a greater proportion of those earnings to our shareholders,” Staley noted in a statement.

The Justice Department also settled with two former Barclays executives, who were sued for fraud after the bank balked at paying the amount sought by the government in negotiations. At the time, Barclays said that it would “vigorously defend” the case.

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