Barclays to pay $2 billion fine for crisis-era fraud

British banking giant Barclays has agreed to pay a $2 billion fine to resolve a fraud case involving mortgage derivatives sold in the run-up to the 2008 global financial crisis, the US Justice Department said Thursday. Authorities said the loans underlying the investment vehicles "were significantly less creditworthy than Barclays represented," and the company "intentionally misrepresented" key facts about the mortgages involved.
Federal prosecutors also reached settlements with two former Barclays executives over their roles in the sale and trading of residential mortgage-backed securities (RMBS), a type of investment derivative that bundled home loans into securities sold to investors. 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 $2 million.
The settlement makes Barclays the latest major bank to be sanctioned for crisis-era fraud nearly a decade after the collapse of major New York financial institutions dealing in mortgage-backed derivatives sparked a global recession.
Last week, Swiss bank UBS agreed to pay $230 million to New York State, also settling charges the bank had misrepresented the value of mortgages underlying securities sold before the crisis. Deutsche Bank and Credit Suisse reached similar crisis-related settlements late last year.
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.
"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. "It has been a priority for this management team from the start to resolve these historic issues in a timely and appropriate manner wherever possible."
The bank said the settlement would affect its core capital ratio, a closely watched measure of financial soundness, by 0.5 percent. The settlement lets Barclays put its biggest legal worry in the US behind it. Shares in the British lender jumped in London on the news, with the stock's price up 0.6 percent toward 1430 GMT.
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 $31 billion. Barclays misled investors about the assets' quality, causing billions of dollars in losses, the Justice Department said in a statement.
The bank lied about the creditworthiness of borrowers whose loans underpinned the securities and who then defaulted at "exceptionally high rates," the statement said. US federal authorities have faced public outrage and hostile scrutiny from lawmakers over the perceived failure to bring criminal cases against any senior bank executives for their roles in sparking the crisis - despite a Justice Department finding that industry practices involved widespread fraudulent conduct.
Last month, Britain's Serious Fraud Office announced charges against Barclays Bank over emergency fundraising from Qatar during the financial crisis - adding to charges against parent company Barclays PLC and four former top executives.