Goldman to pay $5bn for its role in 2008 financial crisis

© Brendan McDermid
Wall Street bank Goldman Sachs has agreed to pay $5.06 billion to settle claims it misled mortgage bond investors during the 2008 financial crisis, the US Department of Justice said on Monday.

According to the authorities, the settlement is related to the bank’s “conduct in packaging, securitization, marketing and sale of residential mortgage-backed securities between 2005 and 2007.”

“This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail,” said Acting Associate Attorney Stuart Delery.  He added that the settlement includes a $1.8 billion commitment to help repair the damage to homeowners and communities that Goldman acknowledges resulted from its conduct. The fine also includes a $2.385 billion civil penalty and $875 million in cash payments.

“We are pleased to put these legacy matters behind us. Since the financial crisis, we have taken significant steps to strengthen our culture, reinforce our commitment to our clients and ensure our governance processes are robust,” said a statement from Goldman Sachs.

Goldman is the last major American bank to settle with the government. In January, the bank disclosed that it had agreed a payment to settle “actual and potential civil claims” by the US Justice Department and the attorney generals of New York and Illinois, as well as state regulators. Goldman then said it had set aside funds for many of the charges. The bank has already paid $3 billion to the Federal Housing Finance Agency.

“Since 2012, my number one priority has been getting New Yorkers the resources they need to rebuild,” said New York Attorney General Eric Schneiderman. “This settlement, like those before it, ensures that these critical programs … will continue to get funded well into the future, and will be paid for by the institutions responsible for the financial crisis.”

READ MORE: Goldman Sachs to pay $5bn to settle financial-crisis mortgages

Over the past four years, Wall Street banks have paid more than $40 billion in fines to resolve claims connected with faulty securities related to the financial crisis. Bank of America paid $16.6 billion, JPMorgan Chase $13 billion, Citibank $7 billion and Morgan Stanley $3.2 billion.

In response to the subprime mortgage crisis, the US government enacted a law in 2008 to spend up to $700 billion to purchase distressed assets, especially mortgage-backed securities, and supply cash directly to banks.