Goldman Agrees To Pay $5.1 billion, Resolves 7 Years’ Pending Mortgage Security Dispute
Goldman Sachs Group Inc. has announced on Thursday, agreeing to pay $5.1 billion in a civil settlement with Federal prosecutors and regulators. The settlement aims to resolve claims arising from the marketing and selling of faulty mortgage securities to investors. Shares of Goldman have witnessed a rise in price 1.5% to $161.39 on Thursday, following the settlement news.
The preliminary accord includes an additional $1.8 billion for consumer relief like reduced loan balances for households whose mortgages have been bundled with disputed securities. Thus total value of the settlement reaches up to $5.1 billion. Earlier, the settlement has been expected at around $3 billion, reports Huffpost Business.
The Wall Street firm is again paying a price for the role it played, more than seven years after the worst financial crisis. However, final terms of the settlement are still being negotiated. The settlement may reduce earnings in the fourth quarter period by approximately $1.5 billion on an after-tax basis. Goldman is scheduled to report fourth-quarter earnings on Wednesday next, reports The New York Times.
The bank has struck the deal to settle actual and potential claims over Goldman's mortgage securitization activities from 2005 to 2007. The accusations have been made by the Department of Justice, attorneys general in New York and Illinois, the National Credit Union Administration and the Federal Home Loan Banks of Chicago and Seattle.
The agreement in principle requires Goldman to pay $2.385 billion in civil penalties and $875 million in cash and provide up to $1.8 billion in relief to consumers. However, the penalty amount remains smaller than that of many other Wall Street firms like Bank of America or JP Morgan Chase, reports Digital News Journal.
Bank of America has counted penalty for around $16.6 billion in a similar settlement with federal and state agencies in 2014. In a similar instance, JPMorgan Chase has paid about $13 billion in 2013. All the Wall Street banks have paid more than $40 billion in settlements to resolve claims investigated by the task force.
The recent settlement remains on top of the approximately $3 billion penalty Goldman has to count as penalty to the Federal Housing Finance Agency in 2014. The penalty has been counted to settle claims with Fannie Mae and Freddie Mac over the sale of flawed mortgage securities. Goldman has been compelled to settle the matter through buying back bonds from the mortgage finance firms.
Goldman Sachs Group Inc. has announced to pay $5.1 billion in total to resolve claims arising from the marketing and selling of faulty mortgage securities to investors. In 2014, the Wall Street firm has been penalized with $3 billion to the Federal Housing Agency. Ending the seven years' pending dispute appears as a relief to the investors and Goldman's share price has increased 1.5% on Thursday, probably as a consequence of the settlement.