In what is being called the final multibillion-dollar settlement in connection with the subprime meltdown that contributed to the Great Recession, Goldman Sachs Group Inc. has agreed to pay about $5.1 billion to settle allegations brought by the U.S. Department of Justice (DOJ) that it sold faulty mortgage-backed securities to investors from 2005 to 2007.
Under the terms of the agreement in principle, the firm will pay about $2.4 billion in fines, make $875 million in cash payments and provide $1.8 billion in consumer relief in the form of principal forgiveness for underwater homeowners and distressed borrowers. Some of the $1.8 billion will also be used for the construction, rehabilitation and preservation of affordable housing; to support debt restructuring, foreclosure prevention and housing quality improvement programs; and to fund land banks.
The penalties will reduce Goldman Sachs' fourth-quarter profit by about $1.5 billion, the bank says in a statement.
‘We are pleased to have reached an agreement in principle to resolve these matters,’ says Lloyd C. Blankfein, chairman and CEO of Goldman Sachs Group Inc., in the statement.
The settlement closes out a year of record legal and litigation costs for the major U.S. banks. JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. have already paid more than $37 billion in the form of cash and consumer relief to resolve similar complaints brought by the DOJ.
The settlement also resolves claims brought by the National Credit Union Administration and the Federal Home Loan Banks of Chicago and Seattle, according to the bank's statement.
The settlement is still yet to be approved.
For more, check out this Bloomberg News report.