The US Department of Justice (DoJ) has agreed settlements with two European banks over the sale of residential mortgage-backed securities (RMBS) worth more than $10 billion, and brought civil charges against a third.
Deutsche Bank has agreed to pay a civil monetary penalty of $3.1 billion and provide $4.1 billion in consumer relief in the US over five years.
The settlement with Credit Suisse is similarly structured, but with a civil monetary penalty of $2.48 billion and consumer relief of $2.8 billion.
Both settlements, in principle and subject to approvals, are lower than expected. Deutsche Bank was widely thought to be facing a potential fine of $14 billion.
The settlements will relieve Deutsche Bank and Credit Suisse of civil charges related to the securitisation, underwriting and issuance of RMBS up to 2007. Consumer relief is expected to be in the form of loan modifications and other assistance to homeowners and borrowers.
The DoJ has also filed a civil complaint against Barclays in the US District Court of the Eastern District of New York, accusing the bank of engaging in a fraudulent scheme to sell RMBS between 2005 and 2007.
According to the DoJ, Barclays personnel repeatedly misrepresented the characteristics of the loans backing securities they sold to investors throughout the world, who incurred billions of dollars in losses as a result of the fraudulent scheme.
The suit also named two former Barclays executives as defendants. Paul Menefee, who served as head banker on subprime RMBS securitisations, and John Carroll, who served as head trader for subprime loan acquisitions, are accused of violating the Financial Institutions Reform, Recovery and Enforcement Act, based on mail, wire and bank fraud, and other misconduct.
“The widespread fraud that investment banks like Barclays committed in the packaging and sale of residential mortgage-backed securities injured tens of thousands of investors and significantly contributed to the Financial Crisis of 2008,” said principal deputy associate attorney general Bill Baer.
“Millions of homeowners were left with homes they could not afford, leaving entire neighbourhoods devastated. The government’s complaint alleges that Barclays fraudulently sold investors RMBS full of mortgages it knew were likely to fail, all while telling investors that the mortgages backing the securities were sound."
"Today’s complaint makes clear that the DoJ will continue to hold financial institutions, and the individuals who work for them, fully accountable for harming investors and the American public.”
Barclays said it rejects all of the claims made in the DoJ’s complaint.
“Barclays considers that the claims made in the complaint are disconnected from the facts. Barclays will vigorously defend the complaint and intends to seek its dismissal at the earliest opportunity,” the bank said in a statement.
