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Goldman Sachs has agreed to pay nearly $5.1 billion in a deal to settle state and federal government investigations of its role in creating and selling toxic residential mortgage-backed securities from 2005 to 2007.
The investment bank had been accused of cobbling together home mortgage securities it knew would implode and then selling them to unsuspecting investors. Those deals helped fuel the 2008 financial crisis.
“We are pleased to have reached an agreement in principle to resolve these matters,” Goldman Sachs Chairman and CEO Lloyd Blankfein said in a statement announcing the deal.
The $5.1 billion settlement includes a $2.4 billion civil monetary penalty, $875 million cash payment and $1.8 billion in consumer relief in the form of loan forgiveness for some underwater borrowers, financing and construction of affordable housing, and other relief programs.
“This cleans up a piece of the company that took eight years to clean up. It’s finally gone,” Dick Bove, a veteran banking analyst at Rafferty Capital, told CNN Money.
The tentative settlement needs the approval of the U.S. Department of Justice, the attorneys general of Illinois and New York, and other regulators, who are all part of a joint state-federal task force that President Barack Obama created after the financial meltdown, according to the Associated Press.
Other big banks, including Chase, JP Morgan, Citigroup and Bank of America, have already reached similar multibillion-dollar settlements for their part in creating and selling mortgage-backed securities in the years leading up to the economic crisis.
New York City-based Goldman Sachs said its fourth-quarter earnings will be reduced by $1.5 billion after tax as a result of the settlement.
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