Barclays pays $2 billion to settle mortgage securities suit
Barclays Plc agreed to pay US$2 billion in civil penalties to settle a U.S. investigation into its marketing of residential mortgage-backed securities between 2005 and 2007.
The probe resolves a rare Justice Department lawsuit that the bank has battled since the waning days of the Obama administration. The suit was also unusual in targeting two former executives at the bank, Paul Menefee and John Carroll, who also settled Thursday and agreed to pay US$2 million to resolve claims without admitting wrongdoing.
“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,” Laura Wertheimer, the inspector general for the Federal Housing Finance Agency, said in a statement Thursday. “Today’s settlement holds accountable those who waste, steal or abuse funds in connection with FHFA or any of the entities it regulates.”
Waiting to resolve the case paid off for the London-based bank. It was said in 2016 to press to keep any settlement to US$2 billion. The Justice Department balked and sued that December. It was a rare move as big banks typically negotiate a settlement before it reaches that point and risk a courtroom showdown with U.S. lawyers.
Barclays Chief Executive Officer Jes Staley welcomed the deal in a statement and called it “a fair and proportionate settlement.” Staley said the bank remained committed to paying a 6.5 pence dividend for 2018. The bank will recognize the fine in its first quarter earnings.
“The settlement came at the bottom end of expectations and much sooner than expected,” said Ian Gordon, an analyst at Investec Plc, who called it a “clear positive.”
Menefee, who was the head banker on Barclays’s subprime RMBS securitizations, “has always maintained that the government’s FIRREA lawsuit against him was baseless,” his lawyers said in a statement, referring to the statute under which the case was brought. “Solely to put this matter behind him, Mr. Menefee has agreed to a settlement in which he has not admitted any wrongdoing.”
Carroll is pleased the government “relented in its efforts to prove wrongdoing where none exists,” lawyer Glen McGorty said in an emailed statement. “He looks forward to putting this experience behind him.’
The U.S. probe targeted 36 RMBS deals involving US$31 billion worth of loans, more than half of which defaulted. The Justice Department claimed that borrowers whose loans backed subprime mortgage deals were significantly less creditworthy than Barclays represented. The bank denied the allegations.
The case is U.S. v Barclays Capital, 16-cv-7057, U.S. District Court, Eastern District of New York (Brooklyn).