Goldman Sachs to Pay $5 Billion as Part of Settlement Agreement Stemming From 2008 Financial Crisis
On Monday, a state and federal working group led by New York Attorney General Eric Schneiderman announced a $5 billion settlement with Goldman Sachs in connection with practices that contributed to the financial crisis. Of the $5 billion, $670 million will be allocated to New York state.
Goldman will pay a $2.385 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) as part of the agreement. It has also agreed to pay $1.8 billion in relief to underwater homeowners and distressed borrowers, and in the form of loan forgiveness and financing for affordable housing. The bank will also pay $875 million to resolve federal and state claims.
“We are pleased to put these legacy matters behind us,” Michael DuVally, a spokesman for the bank, said in a statement provided to Gawker. “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.”
The settlement was negotiated through the joint state and federal Residential Mortgage-Backed Securities Working Group, founded in 2012, after the newly-elected Attorney General Schneiderman refused a settlement deal that would have granted immunity to the five largest mortgage servicing banks, including Bank of America.
As part of the deal announced Monday, Goldman agreed to the release of a “Statement of Facts,” which enumerate the practices and conditions that led, in part, to the financial and housing crisis of 2008. For example:
On April 11, 2006, while Goldman was preparing one of the GSAA offerings backed by loans from the March 30 Countrywide pools for securitization, a Goldman mortgage department manager circulated to a large group of Goldman employees a “very bullish” equity research report regarding Countrywide’s common stock, which recommended the purchase of Countrywide shares and highlighted that Countrywide’s March 2006 loan origination volume had exceeded expectations. Goldman’s head of due diligence, who had just overseen Goldman’s due diligence on six Countrywide pools that closed during a two-day period at the end of March, responded to the research report by saying: “If they only knew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .”
Goldman did not disclose to investors that it had identified certain issues with Countrywide’s origination process.
Monday’s agreement includes no criminal penalties or sanctions. Banks have paid nearly $95 billion as part of settlement agreements at both the state and federal levels since the crash.