Barclays to pay $2B to settle fraud claims from 2000s housing crisis

Barclays To Pay $2 Billion Fine For 2008 Financial Crisis Era Fraud US

US federal prosecutors have accused Barclays of a fraudulent scheme involving 36 deals

Barclays has agreed to pay $2bn (£1.4 billion) in civil penalties to settle claims over the sale of mortgage-backed securities in the lead up to the financial crisis, the US Department of Justice has said.

Barclays also reached an agreement with former executives, Paul Menefee, the head banker on Barclay's subprime RMBS securitizations, and John Carroll, the head trader for subprime loan acquisitions.

Last week, Swiss bank UBS agreed to pay US$230 million to New York State, also settling charges the bank had misrepresented the value of mortgages underlying securities sold before the crisis.

Donoghue, US Attorney for the Eastern District of NY, said: "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".

The Barclays Bank sign on a branch in London in 2015.

The department said the firm misled investors about the quality of the mortgage loans backing those deals and committed violations of mail fraud and bank fraud.

In exchange for payment of the fine, the Justice Department will withdraw a civil complaint filed against the Barclays in December 2016, leaving the bank with a clean record in the case.

After a three-year investigation, federal prosecutors accused Barclays of a fraudulent scheme from 2005 to 2007 involving 36 deals in RMBS initially valued at US$31 billion.

Big banks typically negotiate a settlement rather than risk a protracted and reputation-damaging courtroom showdown with USA lawyers.

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.

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

With the settlement now in the rear-view mirror, Barclays said it plans to pay a 6.5 pence dividend for 2018.

But Barclays vowed to fight the lawsuit, saying it had an obligation to its shareholders to defend itself against "unreasonable allegations and demand".

Carroll is pleased the government "relented in its efforts to prove wrongdoing where none exists", lawyer Glen McGorty said in an emailed statement.

It said that in general, the borrowers whose loans backed the deals were "significantly less creditworthy" than Barclays represented, and the loans defaulted at exceptionally high rates early in the life of the deals.

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