Tuesday 17 July 2018

Barclays reaches two billion dollar settlement with US Department of Justice

Two former Barclays executives have also reached a combined settlement of two million US dollars (£1.4 million).

Barclays
Barclays

By Kalyeena Makortoff, Press Association City Correspondent

Barclays has reached a two billion US dollar (£1.4 billion) settlement with the US Department of Justice (DOJ) relating to the sale of mortgage-backed securities in the lead up to the financial crisis.

It follows a three-year investigation into allegations that Barclays caused billions of dollars of losses to investors by “engaging in a fraudulent scheme” to sell Residential Mortgage-Backed Securities (RMBS) between 2005 and 2007.

The bank was said to have misled investors about the quality of the mortgage loans backing those deals.

The DOJ 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.

Two former Barclays executives have also reached a combined settlement of two million US dollars (£1.4 million).

They are Paul Menefee, who served as the head banker of Barclays’ subprime RMBS securitisation unit, and John Carroll, who worked as the head trader for subprime loan acquisitions

Richard Donoghue, United States Attorney for the Eastern District of New York, said: “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 recognising the harm that was caused to the national economy and to investors in RMBS.”

I am pleased that we have been able to reach a fair and proportionate settlement with the Department of Justice Barclays chief executive Jes Staley

Barclays said the settlement resolves “all actual and potential civil claims by the DoJ” relating to securitisation, underwriting and sale of mortgage-backed securities in the period 2005-2007.

Chief executive Jes Staley said: “I am pleased that we have been able to reach a fair and proportionate settlement with the Department of Justice.

“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.

“The completion of our restructuring in 2017, and putting significant legacy matters like this one behind us, mean Barclays is well positioned to produce stronger earnings going forward, and to start returning a greater proportion of those earnings to our shareholders over time.

“Accordingly, it remains our intention to pay a dividend of 6.5 pence for 2018.”

Barclays shares edged down in the wake of the announcement.

The complaint involved 36 residential mortgage-backed security deals, which made 31 billion US dollars (£22 billion) of subprime and Alt-A mortgage loans tradeable on the market.

It alleged that the borrowers whose loans backed those deals were “significantly less trustworthy” than Barclays made them out to be, while the mortgaged properties were “systemically worth less” than what had been presented to investors.

More than half of those loans defaulted.

The settlement comes nearly a month after Barclays confirmed it had swung to a bottom-line loss of nearly £2 billion for 2017, after a string of hefty charges, including US President Donald Trump’s corporate tax changes and a hit from the collapse of Carillion.

Pre-tax profits rose 10% to £5.3 billion for 2017, but it reported an after-tax loss of £1.9 billion against profits of £1.6 billion in 2016.

It was pushed into the red by £2.5 billion in previously-announced losses from the sale of Barclays Africa Group and a £901 million charge from the US president’s January 1 corporate tax changes, as well as a £127 million blow in the fourth quarter from failed outsourcing giant Carillion.

The group’s profits, stripping out these charges, were also lower than expected as its investment bank saw earnings dive 22% amid “weak market conditions”.

Press Association

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