The management team at Barclays Plc. is facing a U.S. demand that they pay over mortgages misconduct from the financial crisis. Prosecutors dared the U.S to sue, and the Justice Department obliged.
The bank was hit with a civil suit Thursday after failing to agree on a price for the U.S. investigation. The U.S. is accusing the firm of selling $31 billion in false mortgage securities from December 2005-2007.
The complaint against Barclays broadly mimics allegations against other banks in mortgage-security settlements that have cost the government $46 billion in penalties. This time, the surprise is that a global bank is refusing the Justice Department’s demand for a significant financial penalty. Thursday, Barclays said the claims from the government are far from the facts.
Barclays’s position is the opposite of the one taken hours later by their European colleague, Deutsche Bank AG. The German bank says they have set a $7.2 billion preliminary deal with the Justice Department to settle an inquiry into their mortgage securities business.
Barclays has been preparing for months for the fight. In October, Bloomberg said that management drew the line at $2 billion. The bank has also hired Williams & Connolly, an additional law firm, with star litigator Brendan V. Sullivan Jr., whose clients include Lt. Col. Oliver North.
The bank’s opposition reflects U.K. and European financial firms frustration with U.S. authorities, and it’s not only the Justice Department. Since the financial crisis, global banks face expensive probes from the Manhattan District Attorney’s Office, New York’s Department of Financial Services, and numerous state attorneys general. Europe suspects that banks from outside the U.S. get harder hits than domestic lenders for the same misconduct.
This fall, news came in that the Justice Department asked Deutsche Bank for $14 billion to resolve their mortgage-backed securities. That request sent the bank’s shares pummeling on concern that the company would need a major recapitalization.
Barclays may also be counting on getting a better deal once Donald Trump takes over the U.S. presidency in January, or that The Obama Administration will bend in their final days to complete years of work.
Unfortunately, Barclays has a painful history with U.S. authorities. Years ago, the bank cooperated with investigators in the U.S. and U.K. who were examining manipulation of the London Interbank Offered Rate.
In 2012 as the investigation of Barclays died down, their executives were hoping authorities would include them in a group settlement with several other banks. Instead, U.S. regulators quickly announced at least one big penalty. However, that June, Barclays agreed to pay about $450 million to resolve accusations on their employees manipulating Libor.
For being the first to settle, the bank’s reward was losing their chief executive officer, Bob Diamond. The loss sent the firm sideways during an uncertain time. Although that was over four years ago, the bank’s leaders still remember.