Barclays wins its DOJ gamble with $2bn mortgage settlement

Bloomberg

Barclays Plc agreed to pay $2 billion to settle a probe into how it sold the sort of mortgage bonds that fueled the financial crisis, securing a penalty less than half of what US authorities originally demanded. The British lender was the only bank to push back against the size of the settlement demanded by the Justice Department, prompting the prosecutor to file a lawsuit in the waning days of the Obama administration in 2016. The DOJ wanted a fine of about $5 billion, but the bank refused to pay any more than $2 billion, Bloomberg news reported in 2016.
“The settlement came at the bottom end of expectations and much sooner than expected,” said Ian Gordon, an analyst at Investec Plc, who called it a “clear positive” and a “very happy Easter” for the bank. The shares erased a drop of almost 1 percent after the news, closing 0.2 percent higher.
Barclays Chief Executive Officer Jes Staley’s gamble to face down the DOJ paid off. Big banks typically negotiate a settlement rather than risk a protracted and reputation-damaging courtroom showdown with US lawyers. While Staley chose to fight, JPMorgan Chase & Co. CEO Jamie Dimon said he “had no choice” but to “surrender,” agreeing to pay $13 billion to settle similar accusations.
The settlement brings Barclays closer to resolving its litany of crisis-era misconduct, which has hung over the struggling lender for more than a decade. Litigation settlements and fines — including punishments for rigging interest rates and currency markets and bilking UK customers on insurance they didn’t need — have wiped out more than 15 billion pounds ($21 billion) of earnings in the past six years, Chairman John McFarlane said last month. “Putting significant legacy matters like this one behind us means Barclays is well positioned to produce stronger earnings going forward, and to start returning a greater proportion of those earnings to our shareholders,” Staley said in a statement, calling the settlement “fair and proportionate.”
The CEO reiterated his pledge to restore the lender’s dividend to 6.5 pence this year, a key issue for investors such as activist Edward Bramson, who recently acquired 5.2 percent of the voting rights in the British bank, and Chase Coleman’s hedge fund Tiger Global Management, which acquired a $1 billion stake in November. The CEO has also dangled the prospect of share buybacks once legacy issues are sorted.
“This is marginally good news, broadly in line with the figure that they are purported to have offered in 2016, prior to the change in US administration,” said Edward Firth, an analyst at Keefe, Bruyette and Woods in London.