BCS Barclays PLC

By Jenny Strasburg 

Barclays PLC agreed to pay $2 billion in civil penalties to resolve U.S. Justice Department claims that the U.K. lender fraudulently sold mortgage securities that helped fuel the financial crisis, causing investors "enormous losses," the government said Thursday.

Two former Barclays executives also agreed to $2 million in civil penalties to resolve individual claims, the Justice Department said.

The agreements came 15 months after the Justice Department took the unusual step of suing Barclays over the allegations. Barclays sought to have the suit dismissed, calling the claims "disconnected from the facts." Within hours of when that December 2016 lawsuit was filed, the government separately agreed to multibillion-dollar settlements with two other European lenders, Credit Suisse Group AG and Deutsche Bank AG, in parallel mortgage-backed securities probes.

The Justice Department's civil action against Barclays accused the bank of causing billions of dollars in losses to investors in deals involving more than $30 billion worth of mortgage securities between 2005 and 2007. The bank "systematically and intentionally misrepresented key characteristics of the loans," including the credit weakness of borrowers, leading to higher-than-expected default rates, according to the government.

The 2016 lawsuit didn't quantify the damages it sought from the bank. At the time, Barclays was being asked to pay around $5 billion, The Wall Street Journal reported at the time, citing a person familiar with the matter. A portion of that proposed amount likely would have been in consumer relief such as loan modifications.

In the end, Barclays's settlement is solely a financial penalty, with no additional amount for consumer relief. Last year, Attorney General Jeff Sessions said the Justice Department would no longer include provisions in corporate settlements that require payments to third parties not directly involved in legal disputes.

"I am pleased that we have been able to reach a fair and proportionate settlement," Barclays Chief Executive Officer Jes Staley said in a statement Thursday.

"Today's settlement holds accountable those who waste, steal or abuse funds" overseen by the Federal Housing Finance Agency, Laura Wertheimer, the agency's inspector general, said in a joint statement with the Justice Department.

The agreement didn't include an admission of wrongdoing. The bank said it would recognize the penalty in its first-quarter results and that its already-announced 2018 dividend of 6.5 pence remains unchanged. Barclays shares closed 0.2% higher in London.

The two former Barclays executives agreed to $2 million in combined penalties, Paul Menefee and John Carroll, said through statements from their lawyers that the allegations were baseless, noting that they didn't admit to wrongdoing. Both men left Barclays in 2008. A person familiar with the matter said Barclays, not the individuals, paid their penalties.

"Throughout his career, Mr. Carroll has worked honestly and honorably in the interests of his employers and investors, and now, he looks forward to putting this experience behind him," according to a statement Thursday from Mr. Carroll's lawyer.

"Mr. Menefee worked tirelessly, diligently and in good faith at all times on behalf of Barclays and its investors," according to a statement from his lawyer. It said Mr. Menefee settled "solely to put this matter behind him."

For Barclays, the mortgage settlement removes one of several big legal worries hanging over the bank and Mr. Staley. He is awaiting the outcome of a long-running investigation by the U.K.'s Financial Conduct Authority into his efforts to reveal the identity of a whistleblower. The resolution of that probe initially was expected by the end of 2017, people close to the matter said last year. Mr. Staley has apologized for his handling of the whistleblower complaint.

The mortgage settlement announced Thursday capped prolonged on-and-off discussions between the bank and Justice Department that spanned two presidential administrations. At first, some Barclays investors worried that a protracted legal battle could result in a worse deal than the lender initially faced. Mr. Staley was vocal about refusing to accept what he considered an unfair penalty.

The late 2016 Deutsche Bank and Credit Suisse mortgage settlements, for $7.2 billion and $5.3 billion, respectively, were composed partially of cash and partially of consumer-relief funds to be distributed by the government. Deutsche Bank's cash penalty was $3.1 billion, and Credit Suisse's was about $2.5 billion. Those settlements followed previous multibillion-dollar agreements over several years with other big banks, including JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc.

--Adam Clark and Aruna Viswanatha contributed to this article.

Write to Jenny Strasburg at jenny.strasburg@wsj.com

(END) Dow Jones Newswires

March 29, 2018 14:11 ET (18:11 GMT)

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