Justice Department settles with Deutsche Bank, accuses Barclays of fraud in 2008 economic crash

WASHINGTON, Dec. 22 (UPI) -- The U.S. Department of Justice on Thursday made moves against two banks linked to the 2008 global economic crash, reaching a settlement agreement with one and suing the other after settlement negotiations broke down.

Deutsche Bank agreed to a $7.3 billion settlement with the Justice Department related to their handling of residential mortgage-backed securities, while the department sued Barclays Bank on Thursday for its role in the sales of mortgage-backed securities that were based on misrepresented mortgage loans.

The Deutsche Bank settlement is about half the rumored $14 billion the Justice Department opened negotiations by asking for last year, a number that raised fears the bank would go under because it was unable to meet the requirements of the punishment and remain in business at the same time.

The settlement will serve two purposes, sending $3.1 billion to the government as a civil monetary penalty while $4.1 billion will be used for consumer relief purposes such as loan modifications and other assistance for homeowners and borrowers for at least five years.

"The settlement is subject to the negotiation of definitive documentation, and there can be no assurance that the U.S. Department of Justice and the bank will agree on the final documentation," Deutsche Bank said in a press release.

The Barclays lawsuit is focused on the bank pushing what it knew were bad investments, going so far as to buy mortgages it knew were bad, at least partially to maintain a business relationship, but then sell them as good investments -- which they were not.

Justice Department officials include in the lawsuit emails and conversations about the bank's hidden losses and bad investments, and how employees would either hide or improve the situations.

Two Barclays executives are also named in the suit -- Paul Menefee, who was head banker on subprime mortgage securitization, and John Carroll, who was head trader for subprime loan acquisitions -- charging they were largely responsible for the bad-investment scheme. Primarily, they made a series of representations about the loans that were false, and they knew they were false.

"The widespread fraud that investment banks like Barclays committed in the packaging and sale of residential mortgage-backed securities injured tens of thousands of investors and significantly contributed to the Financial Crisis of 2008," Principal Deputy Associate Attorney General Bill Baer said in a press release. "Millions of homeowners were left with homes they could not afford, leaving entire neighborhoods devastated... Today's complaint makes clear that the Department of Justice will continue to hold financial institutions, and the individuals who work for them, fully accountable for harming investors and the American public."