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Mortgage Securities Suit To Be Settled By Barclays By Civil Fine Of $2 Billion


Mortgage Securities Suit To Be Settled By Barclays By Civil Fine Of $2 Billion
The charges against Barclays Plc of irregularities in the marketing of residential mortgage-backed securities in the U.S. between 2005 and 2007 – being investigated in the US., would be settled against a payment of $2 billion in civil penalties.
The investigations and the rare lawsuit was initiated during the last days of the Obama administration and this agreement brings an end to that case. Two former executives at Barclays, Paul Menefee and John Carroll were unusually indicted in the case and both agreed to settle the case with the payment of $2 million. None accepted the charges.
“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 on Thursday. “Today’s settlement holds accountable those who waste, steal or abuse funds in connection with FHFA or any of the entities it regulates.”
For the London based bank, it was a benefit to wait for the resolution of the case. The bank had pressed in 2016 to keep the settlement to below $2 billion but the U.S. Justice Department disagreed and sued the bank in December that very year. this was somewhat unusual because settlements are typically achieved by big banks before cases and lawsuits are filed against them.
The settlement was called “a fair and proportionate settlement.” By Barclays Chief Executive Officer Jes Staley while welcoming the deal in a statement. Staley reiterated that the bank would still pay a 6.5 per cent dividend for 2018. The fine would be recognized in the first quarter earnings of the bank, it said.
“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.”
lawyer Glen McGorty said in an emailed statement to the press that Carroll is pleased the government “relented in its efforts to prove wrongdoing where none exists”. He looks forward to putting this experience behind him.’
More than half of the $31 billion worth of loans that the bank had given through 36 RMBS deals had defaulted and the U.S. probe had targeted those deals. Barclays represented some of the borrowers whose loans were backed subprime mortgage deals as grossly high, claimed the Justice Department. The bank denied the allegations.