Barclays PLC (LON:BARC) has rejected claims made by the US Department of Justice (DoJ), which is suing the bank for charges of fraud in the sale of mortgage securities in the run-up to the financial crisis.
The lender has been accused of deceiving investors about the quality of loans underlying tens of billions of dollars of mortgage securities between 2005 and 2007, according to the lawsuit, which was filed yesterday in the US District Court in Brooklyn, New York.
US Attorney General Loretta Lynch said in a statement: “With this filing, we are sending a clear message that the Department of Justice will not tolerate the defrauding of investors and the American people."
However, Barclays said the claims in the lawsuit are "disconnected from the facts" and that it has an obligation to defend against "unreasonable allegations and demands."
In terms of demands, Barclays was apparently referring to negotiations with the DoJ to settle the claims without a case being filed.
Commentators at Credit Suisse said: “The breakdown in talks suggests that the bank is willing to take its chances with the incoming enforcement officials in the Trump administration.
And they noted: “The bank has lined up a lawyer known for his aggressive defence of clients including Lt Col. Oliver North.”
In its statement the bank said: "Barclays will vigorously defend the complaint and seek its dismissal at the earliest opportunity.”
Barclays is among a number of European banks that have been under investigation for misconduct in the sale of mortgage securities, which contributed to the 2008 financial crisis.
In early London trading, Barclays shares were 0.8%, or 1.75p lower at 225.25p.
Deutsche Bank settlement ...
The Barclays suit came as Germany’s Deutsche Bank AG agreed late yesterday to pay a US$3.1bn penalty, plus provide US$4.1bln in consumer relief to settle mortgage-backed securities claims with the US DoJ.
The settlement, which has been “agreed in principle”, follows months of negotiations with the US government, which initially had suggested Deutsche Bank pay US$14bn in total to settle the matters.
Ipek Ozkardeskaya, senior market analyst at London Capital Group, said: “Although today’s settlement is not the end of the route, it has been a good short-term relief for investors, given that Deutsche Bank needn’t raise capital to cover for legal charges in the immediate future.“
Swiss lender Credit Suisse SA also announced yesterday that it had reached a provisional US$5.3bn deal to settle similar claims made by the DoJ.
Major US banks including JPMorgan Chase & Co (NYSE:JPM) and Bank of America Corp. (NYSE:BAC) have already paid tens of billions of dollars to settle with US authorities over their pooling and sale of mortgage-backed securities.
-- Adds broker comment, share price --