Goldman Sachs Settles RMBS Claims for $5B

Jan 14 2016 | 9:08pm ET

Goldman Sachs has agreed to pay $5.06 billion to resolve civil claims related to the securitization, underwriting and sale of residential mortgage-backed securities (RMBS) in the years leading up to the financial crisis. 

The settlement with securities regulators and federal prosecutors was announced after the close of trading on Thursday, and is comprised of $2.385 billion in civil monetary penalties, $875 million in cash payments and $1.8 billion in consumer relief. 

The agreement in principle will settle a wide range of actual and potential claims related to RMBS transactions that took place between 2005 and 2007, according to Reuters. The U.S. Department of Justice, the New York and Illinois Attorneys General, the National Credit Union Administration and the Federal Home Loan Banks of Chicago and Seattle were among those seeking redress from the bank.

Goldman’s settlement, while large, is a fraction of those paid out by other banks for crisis-related MBS activity. Bank of America paid more than $16 billion in a similar settlement in 2014, while JPMorgan Chase paid about $13 billion in 2013.

“We are pleased to have reached an agreement in principle to resolve these matters,” stated Lloyd Blankfein, chairman and CEO of Goldman Sachs, in a fairly terse statement released Thursday afternoon.

The deal remains subject to the negotiation of definitive documentation. If consummated, it will reduce earnings for the fourth quarter of 2015 by approximately $1.5 billion on an after-tax basis, according to the company. 

Crisis-era mortgage-backed securities were a costly business for Goldman. The company paid $3 billion in 2014 to settle claims from Fannie Mae and Freddie Mac over the securities, and shelled out $500 million to the SEC in 2010 to settle claims it misled investors in its infamous Abacus subprime CDO.

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