Barclays agrees to $2-billion settlement stemming from crisis-era toxic mortgage bonds

A London branch of Barclays Bank in July 2015
(Kirsty Wigglesworth / Associated Press)

Barclays Plc agreed to pay $2 billion in civil penalties to settle a U.S. investigation into its marketing of residential mortgage-backed securities between 2005 and 2007 that were backed by subprime loans that went into default.

The probe resolves a rare Justice Department lawsuit that the bank has battled since the waning days of the Obama administration. The suit was also unusual in targeting two former executives at the bank, Paul Menefee and John Carroll, who also settled Thursday and agreed to pay $2 million to resolve claims without admitting wrongdoing.

“The actions of Barclays and the two individual defendants resulted in enormous losses to the investors who purchased the residential mortgage-backed securities backed by defective loans,” Laura Wertheimer, the inspector general for the Federal Housing Finance Agency, said in a statement Thursday. “Today’s settlement holds accountable those who waste, steal or abuse funds in connection with FHFA or any of the entities it regulates.”

The U.S. probe targeted 36 residential mortgage-backed securities deals involving $31 billion worth of loans, more than half of which defaulted. The Justice Department claimed that borrowers whose loans backed subprime mortgage deals were significantly less creditworthy than Barclays represented. The bank denied the allegations.


Waiting to resolve the case paid off for the London-based bank, which reportedly sought in 2016 to keep any settlement to $2 billion. The Justice Department balked and sued that December. It was a rare move as big banks typically negotiate a settlement before a case reaches that point, risking a courtroom showdown with U.S. lawyers.

Most other big banks that reached settlements with the Justice Department over crisis-era mortgage cases paid substantially more. Bank of America tops the list with its $16.6-billion deal, and six other banks paid at least twice as much, including Goldman Sachs at $4.2 billion. Wells Fargo & Co., the only California bank in the group, paid $1.4 billion.

Barclays Chief Executive Jes Staley welcomed the deal in a statement and called it “a fair and proportionate settlement.” The bank will recognize the fine in its first-quarter earnings.

“The settlement came at the bottom end of expectations and much sooner than expected,” said Ian Gordon, an analyst at Investec Plc, who called it a “clear positive.”

Menefee, who was the head banker on Barclays’ subprime securitizations, “has always maintained that the government’s … lawsuit against him was baseless,” his lawyers said in a statement. “Solely to put this matter behind him, Mr. Menefee has agreed to a settlement in which he has not admitted any wrongdoing.”

Carroll is pleased the government “relented in its efforts to prove wrongdoing where none exists,” lawyer Glen McGorty said in an emailed statement. “He looks forward to putting this experience behind him.’