Goldman Sachs Group Inc. (GS:US) is in talks to settle a U.S. regulator’s claims the investment bank sold faulty mortgage-backed securities to Fannie Mae and Freddie Mac and will probably pay $800 million to $1.25 billion, according to a person briefed on the discussions.
The high end of the range would be on par with the agreement Morgan Stanley (MS:US) reached this year after being sued over a similar amount of mortgage bonds as New York-based Goldman Sachs. The final amount may change as an agreement is reached, said the person, who asked not to be identified because the settlement talks are private.
The Federal Housing Finance Agency sued 18 banks in 2011 seeking to recoup taxpayer costs from when the government took control of the failing mortgage-finance companies in 2008. Seven banks, including JPMorgan Chase & Co. and Deutsche Bank AG, agreed to pay a total of almost $8 billion last year to settle claims they made misrepresentations about mortgages underlying securities bought by Fannie Mae and Freddie Mac in the lead-up to the credit crisis.
The $800 million figure would surpass Goldman Sachs’s $550 million payment in 2010 to settle a Securities and Exchange Commission suit over the marketing of a synthetic collateralized debt obligation dubbed Abacus 2007-AC1.
Still, Goldman’s cost could be lower than what rival banks paid, as a percentage of the face value of securities bought by Fannie Mae and Freddie Mac. The FHFA said in its original suit that the two companies bought $11.1 billion from Goldman Sachs, and an $800 million settlement would be 7.2 percent of that total. Some banks have settled at amounts that represented between 12 percent and 20 percent.
Morgan Stanley in February agreed to pay $1.25 billion as part of a settlement over $10.6 billion in securities. JPMorgan agreed last year to pay $4 billion to settle claims related to about $33 billion in mortgage bonds.
Bank of America Corp. in March announced a $9.5 billion accord, including paying $6.3 billion in cash to Fannie Mae and Freddie Mac and buying back $3.2 billion of mortgage bonds from them. The housing finance companies bought about $57 billion of bonds from Bank of America and its predecessor firms.
David Wells, a spokesman for Goldman Sachs, didn’t return messages after normal business hours seeking comment on the possible range of costs, which was previously reported by the Wall Street Journal. Stefanie Johnson, an FHFA spokeswoman, said the agency wouldn’t comment on the Goldman Sachs case.
U.S. District Court Judge Denise Cote in Manhattan has set a Sept. 29 trial date for Goldman Sachs. All but four of the FHFA cases have settled, Cote said yesterday in a ruling. The remaining cases involve Goldman Sachs, HSBC North America Holdings Inc., Nomura Holding America Inc. and RBS Securities Inc., she said.
Goldman Sachs said earlier this month that it set aside $284 million in the second quarter for litigation (GS:US) and regulatory proceedings, up from $149 million a year earlier.
Fannie Mae and Freddie Mac have taken $187.5 billion in U.S. aid and have returned more than $200 billion under terms of their federal conservatorship.
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