Mortgages  

Barclays to pay £1.4bn over US mortgage mis-selling claims

Barclays to pay £1.4bn over US mortgage mis-selling claims

FTSE 100 bank Barclays has reached a $2bn (£1.42bn) settlement with US regulators over allegations it mis-sold mortgage backed securities in the lead up to the 2008 financial crisis that was precipitated by a collapse in those types of products.

The settlement was made with the US Department of Justice and related to the period 2005 to 2007.

The US government alleged that Barclays “caused billions of dollars in losses to investors” by misleading them about the quality of the assets which were backing the mortgage bonds in 36 deals carried out by Barclays.

Mortgage backed securities are essentially bundles of mortgage loans which are sold on as bonds to investors.

Those who advocate the products believe they serve the social purpose of allowing poorer consumers to get on the housing ladder.

This would happen because if the bank issuing the mortgage can sell the loan on, there is less risk to the bank in issuing the mortgage, and the mortgage rate offered to consumers should be lower than they would otherwise get, making the mortgage more affordable.

It was the collapse of investor belief in the quality of the mortgages when default rates started to rise, and the difficulty in valuing those assets, that led to the credit crunch, and, in turn, to the financial crisis of 2008.

Jes Staley, chief executive of Barclays, said he was "pleased"  the bank had been able to reach a "fair and proportionate settlement" with the Department of Justice.

"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 completion of our restructuring in 2017, and putting significant legacy matters like this one behind us, mean Barclays is well positioned to produce stronger earnings going forward, and to start returning a greater proportion of those earnings to our shareholders over time.

"Accordingly, it remains our intention to pay a dividend of 6.5 pence for 2018."

Two former Barclays employees, John Menefee and John Carroll, also reached a settlement with the Department of Justice, paying $2m (£1.4m).

Following the announcement of the settlement lawyers representing Mr Carroll said: "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.”   

David.Thorpe@ft.com