Barclays to pay $2 billion to US to settle mortgage suit

Barclays has reached a settlement after allegations it misrepresented securities it sold from 2005 to 2007

"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 British lender was the only bank to push back against the size of the settlement demanded by the Justice Department, prompting the prosecutor to file a lawsuit in the waning days of the Obama administration in 2016.

Barclays misled investors about the assets' quality, causing billions of dollars in losses, the Justice Department said in a statement.

Of the $31 billion of mortgages packaged together in these investments, more than half eventually defaulted.

Barclays recently approached the Justice Department to restart negotiations, according to two people familiar with the matter, who were not authorized to speak publicly.

"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", said United States Attorney Richard Donoghue.

Before the Barclays deal, the US regulators had already fined several major banks more than $50 billion over their dealings in mortgage-backed securities. Deutsche Bank paid $7 billion earlier this year.

Paul Menefee of Austin, Texas, the former head banker for subprime RMBS securitizations at Barclays, and John Carroll of Port Washington, New York, former head trader for subprime loan acquisitions, will pay a combined total of US$2 million.

The Justice Department originally sued Barclays and several of its US affiliates in late 2016 over the sale of risky mortgage-backed securities. The U.S. claims that the borrowers whose loans backed these deals were significantly less creditworthy than Barclays represented, leading to high rates. In addition the mortgaged properties were "systemically worth less" than what had been presented to investors.

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. The British group agrees to make a disbursement of 2 billion dollars (1.623 billion euros).

Barclays' settlement could encourage its rival Royal Bank of Scotland, which has been frustrated by a lack of progress in settling its own case that is blocking the bank from resuming dividend payments.

Staley said that, because of the settlement and a 2017 restructuring, Barclays is "well positioned" to ramp up profits and return a greater share of its profit to shareholders.

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