Barclays to pay $2 Billion to settle Mortgage Securities Lawsuit

Barclays to pay $2 billion U.S. fine over mortgage fraud claims Justice Department

Barclays was accused of misleading investors over the quality of loans behind the deals.

Complex financial instruments known as residential mortgage-backed securities (RMBS), which have been blamed for causing the financial crisis, are at the heart of the cases.

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.

"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", said U.S. Attorney Richard Donoghue for the Eastern District of NY.

Barclays ultimately opts to come to a pact with U.S. Department of Justice to stir up litigation for packaging and issuance of insolvent mortgage-related debt. It is also much less than the $7 billion that Deutsche Bank and $5 billion that Credit Suisse paid.

The Justice Department originally sued Barclays and several of its USA affiliates in late 2016 over the sale of risky mortgage-backed securities.

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

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Paul Menefee, a banker who helped package subprime mortgages into securities, and John Carroll, who was the bank's head trader of mortgage-backed securities, will pay a combined $2 million in fines in exchange for having the charges against them being dismissed.

More than half of mortgages used to structure se assets were insolvent.

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 made a profit of £1.6bn in 2016.

The company said that the penalty will be recognised in the first-quarter of 2018.

The settlement comes almost a month after Barclays confirmed a loss of almost £2bn previous year, 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.

For RBS, which remains more than 70% taxpayer-owned, a long-awaited settlement will be a hugely significant milestone as the beleaguered bank aims to return to normality by re-starting dividend pay-outs, making it easier to start returning the lender to the private sector.

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