Barclays to Pay $2B to Settle RMBS Case

Mar 30, 2018, 01:11
Barclays to Pay $2B to Settle RMBS Case

Federal prosecutors also reached settlements with two former Barclays executives over their roles in the sale and trading of residential mortgage-backed securities (RMBS), a type of investment derivative that bundled home loans into securities sold to investors.

The Justice Department said the British bank "caused billions in losses" to investors by engaging in a "fraudulent scheme" involving three dozen mortgage-backed securities deals sold between 2005 and 2007.

Two executives who no longer work at the bank and named in the civil suit will also shell out $2 million, the news service reported.

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.

As a result of Barclay's alleged actions, investors lost billions of dollars, the Justice Department said.

"It alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), based on mail fraud, wire fraud, bank fraud, and other misconduct", the DoJ said in a statement.

"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", Richard Donoghue, the United States attorney in Brooklyn, New York, said in a statement.

Mr Staley said by "putting significant legacy matters" behind it as well as completing its restructuring past year, Barclays was "well positioned to produce stronger earnings going forward".

Deutsche Bank and Credit Suisse reached similar crisis-related settlements late previous year.

Barclays chief executive Jes Staley said the bank was "pleased that we have been able to reach a fair and proportionate settlement".

The bank lied about the creditworthiness of borrowers whose loans underpinned the securities and who then defaulted at "exceptionally high rates", the statement said.

The settlement comes almost a month after Barclays confirmed a loss of almost £2bn a year ago, after a string of hefty charges, including a £900m from Donald Trump's corporate tax changes and £127m from the collapse of the outsourcing and construction firm Carillion.

In exchange for payment of the fine, the Justice Department will withdraw a civil complaint filed against the Barclays in December 2016, leaving the bank with a clean record in the case. Barclays shares edged down after the announcement.