Barclays to Pay $2 Billion to Resolve Mortgage Securities Claims -- 2nd Update
March 29 2018 - 12:37PM
Dow Jones News
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 pay $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.
"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 were up 0.3% in London Thursday
afternoon.
The two former Barclays executives who agreed to pay $2 million
combined, 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.
"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. Those 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 contributed to this article.
Write to Jenny Strasburg at jenny.strasburg@wsj.com
(END) Dow Jones Newswires
March 29, 2018 12:22 ET (16:22 GMT)
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