USA begins legal action against Barclays over mortgage-backed securities

Josh Kim
Декабря 26, 2016

Kerrie Cohen, a spokeswoman for Barclays, had no immediate comment.

Attorney General Loretta Lynch said: "We are sending a clear message that the Department of Justice will not tolerate the defrauding of investors and the American people".

Deutsche Bank has been facing a $14bn settlement with the DoJ over similar allegations and when the size of the potential penalty leaked in September the shares in Germany's biggest bank tumbled to new lows.

The Justice Department seeks to impose the maximum civil penalty permitted by the Financial Institutions Reform, Recovery, and Enforcement Act, but the complaint does not name a figure.

Banks have reached multibillion-dollar settlements with the United States government over the sale of securities that were promoted as safe investments in the lead-up to the housing market crash, but were in fact bundles of mortgages from borrowers unlikely to be able to repay their loans. Analysts have calculated that RBS could face a bill of up to £9bn.

The DoJ said Barclays was not lending to customers itself but using loans from mortgage lenders Fremont, New Century, WMC, Countrywide, and IndyMac as the basis of the bonds it was selling.

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"These companies then pushed to have Barclays buy as many of their shoddy loans as possible in order to shift the risk of default from the originators onto Barclays' RMBS investors", the complaint claims. "Barclays considers that the claims made in the complaint are disconnected from the facts", said the bank.

Authorities in the USA have sued Barclays PLC (LON:BARC), the multinational banking and financial business from London, United Kingdom on charges of mortgage securities fraud. "Barclays will vigorously defend the complaint and seek its dismissal at the earliest opportunity".

"Millions of homeowners were left with homes they could not afford, leaving entire neighbourhoods devastated".

Barclays' due diligence vendors allegedly described some of the securitized loans as "craptacular" and others as having the "distinct aroma of default", while Menifee himself allegedly observed that one loan pool was "about as bad as it can be". Barclays wrote some $74bn during the period. The scheme involved 36 RMBS deals in which $31bn worth of loans were packaged up in securitisations.

The Deutsche Bank settlement is about half the rumored $14 billion the Justice Department opened negotiations by asking for a year ago, a number that raised fears the bank would go under because it was unable to meet the requirements of the punishment and remain in business at the same time. The government says Barclays "bent over backwards" to please lenders and "on a number of occasions it even agreed to limit the percentage of loans that could be kicked out of a deal".

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