What happens next Where's my refund? Best CD rates this month Shop and save 🤑
Barclays

Barclays pays $2B to settle suit alleging mortgage securities fraud in U.S. in 2005-07

Kevin McCoy
USA TODAY
This file photo taken in 2015 shows a logo of British bank Barclays on a sign outside one of the bank's branches in London.

Barclays has agreed to pay a $2 billion settlement of allegations that the British banking giant misled investors about the quality of mortgage-backed securities during the years before the U.S. financial crisis.

Announcing the agreement on Thursday, the U.S. Department of Justice said it would dismiss its Dec. 2016 lawsuit that accused Barclays of causing investors billions of dollars of losses for problems with more than $31 billion worth of subprime and Alt-A mortgages the bank securitized.

Barclays' offering documents "systematically and intentionally misrepresented key characteristics of the loans," and more than half of the loans defaulted, federal officials said.

Additionally, the Department of Justice reached similar settlements with two Barclays' employees involved with subprime residential mortgage-backed securities. They will pay $2 million collectively.

The agreements mark the latest in a string of U.S. settlements with major banks over sales of tainted mortgage securities from 2005 to 2007 that helped set the stage for the real estate crash that contributed to the financial crisis.

Learn more: Best personal loans

"The substantial penalty Barclays and its executives have agreed to pay is an important step in recognizing the harm that was caused to the national economy and to investors in (residential mortgage-backed securities)," said Richard Donoghue, the U.S. Attorney for the Eastern District of New York.

More:U.S. sues Barclays for alleged mortgage securities fraud

More:Barclays investment bank division pays women half as much as men

More:Barclays CEO James Staley punished over hunt for whistleblower

Barclays said the settlement resolves all actual and potential civil claims by the U.S. Department of Justice relating to the episode. The agreement removes a financial overhang that had clouded the bank's financial outlook.

"I am pleased that we have been able to reach a fair and proportionate settlement with the Department of Justice," Barclays CEO Jes Staley said in a statement issued by the bank.

Barclays said it will recognize the settlement's financial impact during the first quarter of 2018, resulting in a negative impact of just under 0.5% negative impact on the bank's December 31, 2017, Common Equity Tier 1 ratio.

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

Attorneys for Paul Menefee, who served as the bank's head banker on subprime mortgage-backed securitizations, said he agreed to the settlement without admitting any wrongdoing solely to put the matter behind him.

Saying the case against their client "should never have been brought," defense lawyers Barry Berke and Dani James said Menefee "worked tirelessly, diligently and in good faith at all times on behalf of Barclays and its investors."

Glen McGorty, the attorney for John Carroll, who served as Barclays head trader for subprime loan acquisitions, said Carroll was "pleased that the government has relented in its efforts to prove wrongdoing where none exists."

"Consistent with that position, we have agreed to settle this case without an admission to these meritless allegations," added McGorty. "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."

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc

Featured Weekly Ad