Goldman Sachs has agreed to a $5.1 billion settlement to resolve U.S. and state claims related to its sale of residential mortgage-backed securities from 2005 to 2007, the firm announced today (Jan. 14).
As part of the agreement, Goldman will provide $1.8 billion in the form of consumer relief, which includes debt forgiveness, financing and rehabilitating affordable housing, supporting debt restructuring, and preventing foreclosures. It is also paying a $2.385 billion fine, and $875 million in cash payments. The agreement will resolve actual and potential civil claims by 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, the bank said.
With the settlement, Goldman hopes to put the 2008 financial crisis further behind it.
“We are pleased to have reached an agreement in principle to resolve these matters,” Goldman Sachs CEO Lloyd Blankfein said in a press release.
Residential mortgage-backed securities (RMBS)—essentially packages of mortgages that are sliced up and sold off to investors—were a major catalyst of the financial meltdown.
Goldman joins other banks that have paid massive settlements around similar claims. JPMorgan Chase agreed to a record $13 billion settlement in 2013 for its role in underwriting and selling such securities.
Goldman also said the settlement would cut into its fourth quarter earnings— scheduled to be announced on Jan 20—by $1.5 billion. Business Insider noted that the firm is expected to report net income of $1.63 billion, meanings its earnings for the quarter will be essentially wiped out.
Today’s agreement—officially reached with RMBS Working Group, a division of the US Financial Fraud Enforcement Task Force—will settle any existing or potential civil lawsuits regarding Goldman Sachs’ involvement in the RMBS market during the time in question.
Adding a bit of insult to injury, the US Securities and Exchange Commission announced today that Goldman will pay a $15 million fine over its short selling practices.