Barclays to pay US$2 billion fine for fraud during run-up to 2008 financial crisis

British banking giant Barclays has agreed to pay a US$2 billion fine to resolve a fraud case involving mortgage derivatives sold in the run-up to the 2008 global financial crisis, the US Justice Department said Thursday.

Authorities said the loans underlying the investment vehicles “were significantly less creditworthy than Barclays represented,” and the company “intentionally misrepresented” key facts about the mortgages involved.

Federal prosecutors also reached settlements with two former Barclays executives over their roles in the sale and trading of residential mortgage-backed securities (RMBS), a type of investment derivative that bundled home loans into securities sold to investors.

Paul Menefee of Austin, Texas, the former head banker for subprime RMBS securitizations at Barclays, and John Carroll of Port Washington, New York, former head trader for subprime loan acquisitions, will pay a combined total of US$2 million.

The settlement made Barclays the latest major bank to be sanctioned for crisis-era fraud nearly a decade after the collapse of major New York financial institutions dealing in mortgage-backed derivatives sparked a global recession.

Last week, Swiss bank UBS agreed to pay US$230 million to New York state, also settling charges the bank had misrepresented the value of mortgages underlying securities sold before the crisis.

After a three-year investigation, federal prosecutors accused Barclays of a fraudulent scheme involving 36 deals in RMBS initially valued at US$31 billion.

Barclays misled investors about the assets’ quality, causing billions of dollars in losses, the Justice Department said in a statement.

The bank lied about the creditworthiness of borrowers whose loans underpinned the securities and who then defaulted at “exceptionally high rates”, the statement said.

In exchange for paying the fine, the Justice Department will withdraw a civil complaint filed against the Barclays in December 2016.