Goldman Sachs settles US Mortgage Probe with $5.1 billion
Apr 12, 2016 07:39 AM EDT
The Goldman Sachs have resolved its case with the US Justice Department for an astonishing amount of $5.1 billion as settlement offer. The case centers on the handling of mortgage-backed securities involving the loans that weren't properly vetted before being sold to investors.
According to Yahoo, New York-based Goldman Sachs will pay $2.39 billion in civil penalty, make $875 million in cash payments and provide a $1.8 billion in consumer relief as revealed by the Justice Department. Acting Associate Attorney General Stuart Delery said in a statement that "This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail."
Meanwhile, the bank already set aside provisions for the most of the charges, as reported by Bloomberg. Goldman Sachs allocated $1.95 billion for its legal and litigation expenses due in the fourth quarter with a $4.01 billion for all of 2015. It is more than double the expenses they have in the last 2 years combined.
The deal is also resolving past claims of authorities from New York, California and Illinois regarding bank securitization, underwriting and sale of bonds from the years 2005 to 2007. The government's mortgage-backed security resolutions are coming from the 2012 order of President Barack Obama to punish Wall Street for fueling the financial crisis with bonds linked to mortgages.
Japan Times wrote that Goldman Sachs agreed to the statement of facts that put together the resolution which gives examples of what the government said were false and misleading interpretation to the investors. The bank's diligence reported an 'unusually high' percentage of loans with credit and compliance defects rooing back in August 2006.
The resolution is the fifth multibillion-dollar settlement reached with the US banks after the government pointed Wall Street as the one who created and sold subprime mortgage bonds, leading to the 2008 financial crisis. Other than Goldman Sachs, Royal Bank of Scotland Group PLC and Deutsche Bank AG are still under investigation.