The Goldman Sachs Group Inc. (GS) said Thursday that it agreed to a $5.1 billion settlement to resolve U.S. and state claims related to securitization, underwriting and sale of residential mortgage-backed securities from 2005 to 2007. The agreement in principle will reduce earnings for the fourth quarter of 2015 by about $1.5 billion on an after-tax basis.
Separately, The U.S. Securities and Exchange Commission announced that Goldman, Sachs has agreed to pay $15 million to settle charges that its securities lending practices violated federal regulations.
Goldman Sachs said that it has reached an agreement in principle to resolve the ongoing investigation of the Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force.
As per the terms of the agreement in principle, the firm will pay a $2.385 billion civil monetary penalty, make $875 million in cash payments and provide $1.8 billion in consumer relief.
The consumer relief will be in the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programs, as well as land banks.
The agreement in principle will resolve actual and potential civil claims by the U.S. Department of Justice, the New York and Illinois Attorneys General, the National Credit Union Administration and the Federal Home Loan Banks of Chicago and Seattle, relating to the firm's securitization, underwriting and sale of residential mortgage-backed securities from 2005 to 2007.
The agreement in principle is subject to the negotiation of definitive documentation, and there can be no assurance that the firm, the U.S. Department of Justice and the other applicable governmental authorities will agree on the definitive documentation.
In addition, The U.S. Securities and Exchange Commission announced that Goldman, Sachs & Co. has agreed to pay $15 million to settle charges that its securities lending practices violated federal regulations.
According to the SEC's order instituting a settled administrative proceeding, broker-dealers such as Goldman Sachs are regularly asked by customers to locate stock for short selling. Granting a "locate" represents that a firm has borrowed, arranged to borrow, or reasonably believes it could borrow the security to settle the short sale. The SEC foundd that Goldman Sachs violated Regulation SHO by improperly providing locates to customers where it had not performed an adequate review of the securities to be located. Such locates were inaccurately recorded in the firm's locate log that must reflect the basis upon which Goldman Sachs has given out locates.
The SEC's order found that when SEC examiners questioned the firm's securities lending practices during an examination in 2013, Goldman Sachs provided incomplete and unclear responses that adversely affected and unnecessarily prolonged the examination.
GS closed Thursday trading $161.39, up $2.40 or 1.51%. But, in after-hours, the stock, down $0.04 or 0.02%.
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