The US department of justice has accused Barclays of jeopardising the financial position of millions of American homeowners over a decade-old mortgage bond mis-selling scandal.

The DoJ is now taking the bank to court, in what was thought to be the first time an institution had failed to reached a settlement with the US authorities over the sale of residential mortgage-backed securities (RMBS) in the run-up to the banking crisis. Responding to the news on Thursday night, Barclays said it would fight the case.

Loretta Lynch, the US attorney general, said: “Financial institutions like Barclays occupy a position of vital public trust. Ordinary Americans depend on their assurances of transparency and legitimacy, and entrust these banks with their valuable savings.”

As the DoJ issued its civil claim in the New York courts, Lynch said: “As alleged in this complaint, Barclays jeopardised billions of dollars of wealth through practices that were plainly irresponsible and dishonest. 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.”

No figure was released about the sum that the DoJ had been seeking from Barclays for settling the complaint, which was announced amid speculation that Deutsche Bank was close to reaching an agreement over the mis-selling scandal.

Deutsche Bank has been facing a $14bn settlement with the DoJ over similar allegations and when the size of the potential penalty leaked in September the shares in Germany’s biggest bank tumbled to new lows. Deutsche’s chief executive, John Cryan, has repeatedly insisted that it will not agree to pay such a penalty for a mis-selling saga that dates back to 2005.

Earlier this week Reuters reported that the Swiss bank Credit Suisse had been asked to pay between $5bn and $7bn to settle the long-running investigation.

Bailed-out Royal Bank of Scotland has repeatedly warned that it too faces a penalty from the DoJ over the investigation that reflects an attempt by outgoing president Barack Obama to hold banks accountable for selling the bonds – which packaged up home loans – without telling investors about the risks. Analysts have calculated that RBS could face a bill of up to £9bn.

Since the election of Donald Trump – who takes office next month – analysts have been to trying to gauge what impact this might have on outstanding investigations.



In an announcement that will be released to the London Stock Exchange on Friday, Barclays said it would fight the DoJ. “Barclays rejects the claims made in the complaint. Barclays considers that the claims made in the complaint are disconnected from the facts. We have an obligation to our shareholders, customers, clients, and employees to defend ourselves against unreasonable allegations and demands. Barclays will vigorously defend the complaint and seek its dismissal at the earliest opportunity.”

But Bill Baer, principal deputy associate attorney general, said: “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.

“Millions of homeowners were left with homes they could not afford, leaving entire neighbourhoods devastated. The government’s complaint alleges that Barclays fraudulently sold investors RMBS full of mortgages it knew were likely to fail, all the while telling investors that the mortgages backing the securities were sound.”

The complaint covered the period between 2005 and 2007 and includes allegations of misleading staff against two Barclays staff. The scheme involved 36 RMBS deals in which $31bn worth of loans were packaged up in securitisations.

The DoJ more usually reaches settlements with major financial firms over its investigations and has done so in relation to RMBS with a number of US banks, including JP Morgan, Goldman Sachs, Morgan Stanley, Bank of America Merrill Lynch and Citi. The US has recouped $48bn so far as a result of the mortgage bond mis-selling.

Barclays has set aside £4bn for upcoming fines and litigation but did not have a specific provision for RMBS.

Bloomberg reported that Barclays had hired law firm Williams & Connolly to run its defence against the DoJ.