Barclays, US set to renew talks on toxic mortgages

Bloomberg

Barclays Plc and the US Justice Department, engaged in a legal battle over the suspected fraudulent sale of mortgage securities a decade ago, have revived discussions about reaching an out-of-court settlement, according to people with knowledge of the situation.
The Justice Department has responded in recent weeks to requests from the London-based bank to
reopen negotiations, said the
people, who asked not to be identified speaking about a confidential process. If successful, the lender would avoid a protracted trial and remove a major misconduct issue weighing on its share price.
The Justice Department sued Barclays for fraud in December, in the waning days of the Obama administration, after the bank refused to pay the amount the government sought in negotiations. At the time, people familiar with situation said Barclays was willing to pay no more than $2bn to settle the civil matter, while Justice Department was seeking a far higher penalty. “It’s encouraging to see that the DOJ appears to be back in business regarding the discussion of settlements,” said Edward Firth, analyst at Keefe, Bruyette & Woods. Piers Brown, an analyst at Macquarie Ltd., echoed his sentiment and said $1.5bn would be a “reasonable number” for Barclays to pay.

FIRST LAWSUIT
The lawsuit was the government’s first against a bank over the sale of toxic mortgage bonds that helped spur the financial crisis. Other lenders negotiated settlements worth tens of billions of dollars in penalties overall rather than risk drawn-out litigation and possible trials. Deutsche Bank AG accepted a $7.2 billion agreement to resolve its RMBS investigation in December, the same month talks with Barclays collapsed.
The Justice Department and Barclays declined to comment. By prompting the Justice Department to sue, Barclays may have been betting it would fare better with enforcement officials appointed by President Donald Trump, analysts and legal experts have said, an approach that could be vindicated if Barclays re-enters negotiations.
Barclays asked a federal judge in Brooklyn to dismiss the case this month. The government opposed the request, saying the suit should proceed because its case leaves little doubt that Barclays perpetrated “a massive and coordinated fraud” resulting in billions of dollars in losses to investors. Mortgage-bond probes are still pending into HSBC Holdings Plc, UBS Group AG and Royal Bank of Scotland Group Plc.