Financial-Crisis Charges Net $2B Deal With Barclays

BROOKLYN, N.Y. (CN) – Barclays Capital struck a $2 billion settlement Thursday to resolve federal claims over its sale of shaky mortgage loans in the lead-up to the 2008 financial crisis.

Accusing Barclays of fraud in an unprecedented 2016 complaint, the Justice Department described the bank’s losses as “catastrophic.”

Of the $31 billion worth of residential mortgage-backed securities (RMBS) loans Barclays had securitized, more than half defaulted when the crisis took hold.

U.S. Attorney Richard Donoghue said in a statement Thursday he was pleased with the settlement, which is on par with those that the government reached over similar allegations against Goldman Sachs, Morgan Stanley, Wells Fargo, Deutsche Bank and Credit Suisse.

Though each of those banks reached deferred prosecution agreements, the Justice Department’s negotiations with Barclays appeared to break down shortly after the election of President Donald Trump, with charges being brought mere days before former President Barack Obama left office.

“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,” Donoghue said in a statement.

Filed by Donoghue’s predecessor, former U.S. Attorney Robert Capers, the 2016 complaint claimed that Barclays was aware in the two years prior to the 2008 crisis that its standards for underwriters had been falling to the point where lenders were routinely issuing loans based on knowingly false documentation.

Ignoring red flags about the bad loans, Barclays made deals to securitize billions of dollars’ worth of them anyway, prioritizing lenders’ interests over those of its investors, the complaint alleged.

As part of Thursday’s settlement, former Barclays executives Paul Menefee and John Carroll agreed to pay out a combined $2 million.

“I am pleased that we have been able to reach a fair and proportionate settlement with the Department of Justice,” Barclays CEO Jes Staley said in a statement. “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.”

Noting that the bank completed restructuring in 2017, Staley said Barclays has put “significant legacy matters like this one behind us.”

Federal Housing Finance Agency Inspector General Laura Wertheimer also issued 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,” she said.

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