FIGHTING MAD
Unwilling to settle, Barclays sued over mortgages
One of the UK’s largest banks refused to settle a longsimmering US mortgage bond probe — and was sued by the Justice Department on Thursday for selling $31 billion of toxic bonds.
It is rare for a bank not to settle such federal investigations — and the suit against Barclays Bank sets up perhaps the first big test for Jeff Sessions, President-elect Donald Trump’ s choice for attorney general.
From 2005 to 2008, Barclays, run since 2015 by Chief Executive Jes Staley, sold billions of dollars worth of fraudulent mortgages that it claimed were good as gold — but instead were “catastrophic failures,” the Justice Department claimed in its 198-page suit.
The mortgages were so bad that their own traders referred to them as “craptacular” and having “the distinct aroma of default.”
About half of the total loans ended up failing, which contributed to the 2008 financial crisis, prosecutors claim.
Barclays had set aside about $3.1 billion for a settlement and was expected, like its US rivals, to reach a settlement with the US.
But there were recent reports that the opening offer from the Justice Department was too high for Staley.
Bank of America, JPMorgan and Citigroup have settled similar probes.
Last year, Royal Bank of Scotland and Japan-based Nomura lost a similar suit against the US and were ordered to pay $839 million. The banks have appealed.
Barclays took immediate is- sue with the suit. “Barclays considers that the claims made in the Complaint are disconnected from the facts,” Marc Hazelton, aspokesman, said in a statement.
“We have an obligation to our shareholders, customers, clients, and employees to defend ourselves against unreasonable allegations and de- mands. Barclays will vigorously defend the Complaint and seek its dismissal at the earliest opportunity.”
Justice is zeroing in on Barclays’ role as a middleman leading up to the financial crisis, according to the suit.
The bank would buy mortgages from lenders like Country wide, Angelo Mozilo’s no- torious subprime lender that was later bought by B of A, and Indy Mac, which would be taken over by Steve Mnuchin, who’s now Trump’s pick for Treasury secretary.
Barclays knew those mortgage companies “were routinely originating fraudulent loans,” the Justice Department claimed — but the bank overlooked it in order to make a buck. “Barclays was a willing and active participant in this business, eagerly seeking to do more and more deals, and to securitize more and more loans, in order to increase its profits and its share of the market,” according to the complaint.